Stock market declines and economic worries have weighed on investors' minds -- and portfolios -- this year, as markets slipped into bear territory. And the big question today is: When will the recovery happen? It's impossible to predict the exact date.
But here's the good news: History shows us recovery always happens. That means it's never too early to prepare for better times. One good way to prepare is to consider investing in companies that may lead the market recovery. My prediction is the following three may fit the bill.
1. Amazon
Recent economic problems have weighed heavily on one of Amazon's (AMZN 1.45%) main businesses: e-commerce. Rising inflation means Amazon spends more money transporting goods. And higher inflation hurts customers' wallets, which leaves them with less money to spend on discretionary purchases.
Inflation and other factors resulted in Amazon reporting decreases in operating cash flow and operating income in recent quarters. But we can look into the future with optimism for a few reasons.
First, e-commerce, in general, is growing, and Amazon is a leader. In the second quarter, Amazon said it's making progress on controlling costs and efficiently using its fulfillment network. Second, Amazon's a leader in another high-growth business -- cloud computing. Amazon Web Services continues to grow sales and operating income in the double digits.
Finally, Amazon is expanding in other areas that may drive future growth, such as healthcare. Amazon plans to buy One Medical to secure a position in the primary-care and telehealth markets.
Amazon shares already have demonstrated signs of recovery. They've climbed 23% from their low point in June. And Amazon's sales have continued to rise, despite economic conditions. So there's reason to believe the stock may be among the first to take off as the market recovers.
2. Home Depot
Home Depot (HD 1.95%) shares have lost 33% so far this year. At the same time, business is booming at the world's biggest home-improvement retailer.
The company even reported its best quarterly revenue and earnings ever in the second quarter. That's supported by strength in demand for home-improvement projects in both the do-it-yourself and the professional businesses.
Return on invested capital has generally been on the rise at Home Depot over the years. This shows the company has used its money wisely.
HD Return on Invested Capital data by YCharts.
In the most recent quarter, Home Depot continued to invest in its business -- for example, putting more money into in-stock levels and new supply chain facilities. The company reported $750 million in capital expenditures.
And importantly, Home Depot is also rewarding shareholders. The company paid $2 billion in dividends to shareholders in the quarter and spent $1.5 billion on share repurchases.
Home Depot has managed the crisis well and continues to grow. The shares are trading at 16 times forward earnings estimates. That's compared to about 26, earlier this year. At the same time, revenue continues to rise. All of this means Home Depot may be ready to rebound once the market shows signs of recovery.
3. Teladoc Health
Teladoc Health (TDOC 0.29%) shares have dropped more than 60% this year. The telemedicine leader's stock soared during the early days of the pandemic as visits and revenue surged. Today, visits and revenue still are growing -- but at a slower pace than in those early pandemic days.
Teladoc disappointed investors when it reported two billion-dollar non-cash goodwill impairment charges this year. These indicate Teladoc paid too much for its acquisition of Livongo in 2020.
But pessimism about Teladoc might be overdone. It's important to remember Teladoc serves more than 50% of Fortune 500 companies. And in the second quarter, the company said it had double the number of multimillion-dollar contracts in the pipeline, compared to last year. Telemedicine also is a growth area -- it may reach $396 billion by 2027, Fortune Business Insights predicts.
Teladoc isn't profitable yet, but that isn't shocking. The company still is in the early stages of growth in various areas -- for instance, its Primary360 primary-care service and chronic-care offerings. The good news is both are gaining momentum. And chronic-care members often enroll in multiple programs, which helps client-retention rates.
If you're a cautious investor, you may want to watch Teladoc a bit longer from the sidelines. But for more aggressive investors, today could be a great moment to initiate a position in this stock. If Teladoc continues to gain members and grow revenue, more and more investors may return to the stock -- and Teladoc could be a top performer as the market itself recovers.
