Let's rewind for a second back to March 2009. The markets were tanking, folks were worried about liquidity at banks, and it seemed like just about everyone was asking for a bailout. There was blood in the streets.
If someone would have said back then that the market would rally 350% -- including dividends -- over the next eight-plus years, they would have been laughed out of the room. And yet, that's exactly what happened.
We've been waiting for years for the first dramatic pullback in the stock market, and it really hasn't come. While things can't stay that way forever, it's worth pointing out that some stocks fare notably better in bull markets than others. Read below to find out why our Foolish investors believe Amazon (NASDAQ:AMZN), Shopify (NYSE:SHOP), and Wynn Resorts (NASDAQ:WYNN) are three such stocks.
A bull-market behemoth
Keith Noonan (Amazon): As a stock that's priced for growth, Amazon naturally tends to fare better when market sentiment is optimistic. The company's focus on investing in itself to deliver long-term growth means that metrics like the price-to-earnings ratio have never been particularly useful measures for weighing the value of its stock, but trading at over 270 times forward earnings is still a characteristic that's more palatable in a bull market.
Amazon's businesses also benefit from the wealth effect that accompanies strong market performance. When economic conditions are favorable, consumers are likely to do more shopping through Amazon's digital storefront. The wealth effect also extends to the company's cloud business. Bull market conditions typically give businesses additional confidence to expand and invest in the future, and new businesses are also more likely to pop up and become part of the addressable market for Amazon Web Services.
In the growth stock category, I think Jeff Bezos' company is one of the most compelling long-term investments out there and worth holding onto even when the market turns bear. Amazon is a well-managed business with a history of innovation, and has already survived and thrived through periods of macroeconomic downturn. For investors with a long time horizon, buying during a bear market could present an even bigger opportunity, but Amazon's business model means it's primed to post its best performance when the market is on a bull run.
Take a gamble on Wynn Resorts
Travis Hoium (Wynn Resorts): The performance of gaming stocks in the U.S. and Asia is really a reflection of the economy and wealth of high-end gamblers. When the economy is doing well, casinos make more money from freewheeling spenders -- and when the economy slows down and stocks fall they make less. In a bull market, Wynn Resorts is set to profit from its existing properties and growth.
The core of Wynn's operations today are Wynn Las Vegas, Wynn Macau, and the year-old Wynn Palace in the Cotai region of Macau. Over the past year, they've generated $1.5 billion of adjusted property EBITDA, a measure of cash flow from resorts. That cash can then be used to build new properties, pay down debt, or pay a dividend, which Wynn pays in a modest 1.4% yield.
What makes Wynn, and other gaming stocks, particularly good investments in a bull market is their operating leverage. Most of the money spent in the gaming industry is spent building resorts. Once construction is finished the operations are very high margin, so each percentage point of revenue growth will lead to more than one percent of EBITDA or net income growth. A bull market generally happens at a time when the economy is getting better, so bottom line growth should be strong.
Wynn is especially levered to a strong economy right now because it just opened Wynn Palace in Macau, is constructing Wynn Boston Harbor, and will soon begin construction on a convention and entertainment expansion in Las Vegas that could cost more than $500 million. If the bull market continues, these bets on gaming and entertainment spending growth will pay off, making Wynn Resorts a great stock for investors.
A bull-market only adds to e-commerce strength
Brian Stoffel (Shopify): I'm a firm believer that our nation's slow-and-steady transition to e-commerce will continue no matter the economic climate. That being said, when we have the wealth effect that Keith referenced, it can be a catalyst for booming growth.
Shopify, which provides a platform for any business to create its own presence on the Internet, stands to be a huge winner -- if it can keep the competition at bay. And that's only more evident during boom times. Consider that in 2014, the company brought in $105 million in sales. Just two-and-a-half years later, that number is all the way up to $510 -- a scorching growth rate of 88% per year.
Regarding the competition, it's worth remembering that once a company has integrated all of its Internet presence on one platform, switching costs can be sky-high. While noted short-seller Andrew Left of Citron Research rightly called out the company for not providing some sort of retention metric, there's little to worry about for long-term shareholders: the company's top tier customers grew by 126% last year, and show no signs of slowing down.
While it's near-impossible to value the company at the current time -- it purposely spends a little more than it brings in every year to remain "unprofitable" -- one thing is certain: it is a huge winner during bull markets.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brian Stoffel owns shares of Amazon and Shopify. Keith Noonan has no position in any of the stocks mentioned. Travis Hoium owns shares of Wynn Resorts. The Motley Fool owns shares of and recommends Amazon and Shopify. The Motley Fool has a disclosure policy.