The stock market's recent performance means you may not be thinking about a big rally right now. The S&P 500 has dropped more than 8% so far this year. And concerns about rising inflation and Russia's invasion of Ukraine have weighed on investors' appetite for stocks and other assets.
But history shows us that times of trouble eventually pass. The stock market recovers. And long-term investors who choose solid stocks during those market dips -- often at low prices -- reap rewards.
Market downturns are actually good times to think about the next rally. And that means it's time to take a close look at companies' fundamentals and future prospects. When the picture looks bright, load up your portfolio.
Let's take a look at two growth stocks that have what it takes to deliver major returns during a market rally (and beyond).
Image source: Getty Images.
1. Nike
Nike (NKE 0.73%) has struggled in recent months with supply-chain issues, but there are two bright spots. First, this isn't a permanent problem, and second, this isn't a Nike-specific problem.
The coronavirus pandemic led to factory closures in countries where Nike and other retailers produce their goods. And that impacts the delivery of items to warehouses and stores around the world. As a result, Nike's overall revenue increased only 1% in the most recent quarter -- the fiscal 2022 second quarter.
Still, Nike managed to increase revenue and profit measures across the board. Nike-brand digital sales climbed 12%, with 40% growth in North America, and diluted earnings per share gained 6%. Gross margin rose 280 basis points to 45.9%. This adds to Nike's strong track record of success.
Nike has grown profit and revenue over time. And in 2017, it invested in a plan to focus on direct-to-consumer and digital sales. Like most retailers, Nike's earnings dipped during the pandemic -- but recovery came quickly, thanks to Nike's brand strength and relationship with fans through its apps.
NKE Net Income (Annual) data by YCharts.
In the most recent earnings call, Nike even said it was stronger today than it was prior to the pandemic. The company's biggest growth drivers today include its women's collection and the Jordan brand. And Nike is even entering the metaverse with the acquisition of digital sneaker company RTFKT and the launch of virtual world Nikeland on Roblox.
Once supply-chain issues resolve, Nike might have all that it needs for explosive earnings growth -- and share-price growth -- down the road.
2. Etsy
Etsy's (ETSY -1.62%) shares have dropped 38% since the start of the year. But that movement doesn't reflect today's earnings or the outlook for the company.
Etsy is an online platform for the buying and selling of handmade goods. Sales soared during the early days of the pandemic as people opted for online shopping -- and as they invested in items like handmade masks sold by Etsy shops.
But Etsy's story didn't stop as the world reopened to usual activity. Business continues to flourish. In the fourth quarter, Etsy's gross merchandise sales climbed more than 16% to $4.2 billion. That's a record level. Net income advanced more than 8% to $161.6 million.
But what's most impressive, and what signals future performance, are metrics related to shoppers and their habits. Habitual buyers increased 26% as the fastest-growing buyer segment. These shoppers have at least six shopping days and a spend of more than $200 over the past 12 months.
Etsy also is doing well when it comes to gaining new shoppers. It added 10 million new buyers in the fourth quarter of the year.
Moving forward, Etsy has two additional growth drivers. The company last year acquired Elo7, a Brazilian marketplace for handmade goods, and Depop, a fashion-resale marketplace. These, along with Etsy's Reverb marketplace for musical instruments, have "parallel growth strategies," according to Etsy.
Etsy shares are trading at 31 times forward earnings estimates. That's down from about 75, less than six months ago. This looks pretty cheap considering Etsy's current revenue, loyal shoppers, and growth potential. So Etsy makes a great buy for any investor looking to prepare for the next market rally.
