November saw a surprising surge in the major indices as inflation came in lower than expected. This data gave investors confidence that the U.S. Federal Reserve could ease up on interest rate hikes and -- hopefully -- start lowering them once inflation hits the target of 2%. The Nasdaq Composite index jumped by close to 10% over four trading days, while the bellwether S&P 500 Index rose 6.5%.
It's still early, though, and inflation could still come roaring back with a vengeance. While it's nearly impossible to predict how inflation and interest rates will move, you can stand prepared to buy stocks in case of another market pullback. You should focus on companies that are still growing and can retain their appeal as market leaders within their respective industries. It's crucial that these businesses also be able to tap into long-term sustainable trends.
Here are three stocks you can consider adding to your portfolio should the market suffer another drop.
Image source: Getty Images.
Zoom Video
Zoom Video Communications' (ZM 1.57%) videoconference platform and tools became the face of the pandemic as individuals and corporations tapped the company to continue communicating with one another. Although the pandemic's effects have waned, Zoom's revenue and other metrics continue to grow steadily.
Revenue for Zoom's fiscal 2023 second quarter (ended July 31) rose 8% year over year to $1.1 billion. The company continued growing its enterprise customer base, with enterprise revenue jumping 27% year over year to $599 million for the quarter.
Moreover, Zoom's finances remain robust. It acquired a chat system based on artificial intelligence (AI) and continues to allocate money to research and development to develop new products, such as a digital phone platform.
During its recent Investor Day presentation, aptly named Zoomtopia, the company showed how its total addressable market may triple from $34 billion in 2019 to an estimated $125 billion in 2026. The increase is seen coming from such markets as contact centers, sales intelligence, conversational AI, and virtual assistants.
In another positive development, Zoom highlighted a sharp growth in customers with more than $1 million in annual recurring revenue (ARR). Over the past three years, this category has jumped eightfold -- from just 27 to 223 -- while customers with over $100,000 in ARR soared more than fivefold from 710 to 3,865.
To grow further, Zoom has announced its international expansion and is planning to release new features soon, such as Zoom Mail and Calendar. Once these initiatives gain traction, they should translate to stronger top- and bottom-line growth for the videoconferencing business.
Ulta Beauty
Ulta Beauty (ULTA -0.40%) is the go-to place for all things beauty-related, whether fragrances, cosmetics, or skin care products. The U.S.'s largest beauty retailer continues to report strong numbers and open new stores.
Ulta Beauty saw revenue and net profit dip for fiscal 2021 as comparable store sales turned negative, with the company opening just 10 stores that year. Fiscal 2022, however, enjoyed a strong rebound with 44 new stores opening and comparable store sales surging by close to 38% year over year.
The strong performance has carried on into the current fiscal year, with the first six months seeing an 18.9% year over year increase in revenue to $4.6 billion. Both operating and net income climbed 30% to $829.1 million and $627.1 million, respectively. Free cash flow increased as well, rising by 22.1% to $420 million for the first half of 2022.
Ulta Beauty expects to log comparable store sales growth of 6% to 8% for its fiscal 2022 and open 50 net new stores. The company estimates that the U.S. beauty products market is worth $91 billion and largely fragmented, providing the beauty retailer ample opportunity to continue growing its presence.
Nike
Although Nike's (NKE 0.19%) share price has tumbled close to 36% year to date, the sportswear apparel and footwear giant continues to impress with its top-line growth.
For its fiscal 2022, ended May 31, the company reported a 5% increase in revenue to $46.7 billion, while net income inched up 6% to $6 billion. Its fiscal 2023 first-quarter results saw revenue continue to climb, up 4% year over year to $12.7 billion. Net profit, however, fell by 22% because of higher in-transit inventories as supply chains remain clogged.
Despite the dip in profits, consumers continue to rate the brand highly. Nike stands head and shoulders above the competition in releasing innovative products, with its latest new Air Max Scorpion taking just 18 months to develop. This new product provides Nike's most-ever cushioning per square inch of the shoe.
Nike's digital strategy is also seeing high engagement with its commerce app clocking the highest traffic in its history during the latest quarter. New membership tools introduced for Nike's loyalty program deliver personalized experiences that can help convert more customers and foster stronger loyalty with existing members.
Investors should view this dip in net profits as temporary as the brand and products still command considerable loyalty. Choked supply chains will eventually untangle, and Nike should see its top and bottom lines continue to expand for years to come.
