With the three major indexes falling into a bear market, you may not be thinking about the next bull market. The S&P 500, the Dow Jones Industrial Average, and the Nasdaq have each have lost at least 20% since their most recent highs.
But it's never too soon to start thinking about the next bull market because bear markets generally don't last all that long. Why invest right now instead of waiting? Bear markets often offer us the chance to pick up solid stocks for a bargain -- and then reap the rewards when market conditions improve.
Let's check out three top names that have declined -- but may soar in a bull market, thanks to their strong businesses.
1. Nike
Like many retailers, Nike (NKE -0.70%) is struggling with rising costs and supply chain problems. In the most recent quarter, that resulted in higher inventory and lower gross margin. That disappointed investors. The company's shares slipped more than 12% in one trading session -- for a year-to-date decline of almost 50%.
This leaves Nike trading at 29 times forward-earnings estimates, which is down from more than 45 earlier this year. Why is this a deal? Because of the ongoing strong demand for Nike's products.
The company has especially made progress in its digital business. Nike Digital brand sales jumped 23% in the quarter if we exclude the impact of currency exchanges. This is significant because Nike Digital represents about a quarter of total Nike brand revenue.
Nike membership also is driving growth. The company reported a 30% increase in members who've made repeat purchases. And Nike's overall revenue is on the rise. It climbed 10%, excluding currency impact.
Nike's business may not pick up overnight. For example, the company expects second-quarter gross margin to drop 350 to 400 basis points year over year. That's as Nike uses discounts to bring down inventory levels.
But this and the economic pressures are temporary issues. And Nike's brand strength and demand for its products remain strong.
2. Moderna
Investors generally see Moderna (MRNA -1.31%) as a coronavirus vaccine stock. That reputation has weighed on the stock in recent times because investors are worried about the future demand for coronavirus vaccines.
But Moderna may not be "only" a coronavirus vaccine stock for very long. The company has 46 programs in development and $18 billion in cash to support its work on these potential products.
Three phase 3 programs could result in product launches in the next few years. These are investigational vaccines for cytomegalovirus, flu, and respiratory syncytial virus. Each market represents a billion-dollar opportunity for Moderna.
At the same time, Moderna's coronavirus vaccine revenue isn't over. The company predicts the U.S. market could represent a $5.2 billion to $13 billion opportunity post-pandemic.
Right now, Moderna offers a strain-specific annual booster -- to be updated with the latest strain, as needed. The company also is working on a combined flu/coronavirus candidate. This could be big further down the road because it may easily attract those who go for an annual flu vaccine.
Today, Moderna shares trade for less than five times forward-earnings estimates, compared to about 12, a year ago. This looks cheap considering the potential of Moderna's late-stage pipeline and long-term coronavirus vaccine sales.
3. Tesla
Tesla (TSLA -1.80%) shares have slipped 29% so far this year. That's left this electric-vehicle leader trading at about 57 times forward-earnings estimates -- down from more than 90, earlier this year. This seems reasonable if we look at Tesla's growth so far and future prospects.
Tesla said this week that it produced 365,923 vehicles and delivered 343,830 in the third quarter. That's compared to production of 237,823 and delivery of 241,391 vehicles in the same period a year ago.
During the second quarter, Tesla reported the highest vehicle-production month in the company's history. It also boasts an industry-high operating margin of 14.6% and free cash flow of more than $620 million.
The company has struggled with the challenges of higher commodity and transport costs and the negative impact of currency exchanges. Temporary shutdowns of Tesla's Shanghai factory also have weighed on the vehicle maker, as China's government tried to contain coronavirus cases.
Still, Tesla has managed to increase vehicle production and delivery -- and report earnings growth. This gives us reason to be confident about Tesla once some of these external headwinds subside.
Tesla aims to reach 50% average annual growth in vehicle deliveries over time. To get there, it has invested in production facilities. For example, it's opened new factories in Berlin, Germany and Austin, Texas. Tesla has positioned itself for earnings growth over time -- and that should lead to share-price growth, too.
