Right now, the market is offering investors an opportunity you won't want to miss. And that's the chance to get a great deal on stocks that may excel in the next bull market. What sorts of stocks are these? They are companies that have proven their ability to grow in the past and have the type of businesses that should benefit when consumer spending takes off again.
The bear market scared many investors away from these players because they depend on shoppers' buying power, and in a world of rising inflation, shoppers have cut spending. As a result, valuations of many top consumer goods companies have dropped to bargain-basement levels. Let's check out two to buy before the next bull market.
1. Home Depot
Home Depot's (HD 2.18%) earnings have soared over the past few years. The world's biggest home improvement retailer saw demand increase as people stayed home more and focused on projects there. Sales climbed by more than $47 billion dollars over the past three years. That represents a compound annual growth rate (CAGR) of 12.6%. Home Depot also has seen its investments pay off over time, with return on invested capital rising.
HD Return on Invested Capital data by YCharts.
The retailer managed to resist the pressure of a tough economic environment -- until just recently. Home Depot saw a sales slowdown in the fourth quarter of last year. And Home Depot expects sales growth to be flat this year and diluted earnings per share to fall in the mid-single digits.
Here's why I'm not alarmed: Considering today's economic environment and Home Depot's strong growth over the past few years, it's not surprising to see a pause in the action. But this is temporary. What's important is the long-term picture remains bright. Professional customers' backlogs still remain strong compared to historical levels. And Home Depot has made gains in certain areas that will serve it well over time. For instance, sales through Home Depot's digital platform rose more than 4% in the quarter.
Investors also can count on sharing in Home Depot's successes. The company just increased its quarterly dividend by 10%, and the company said it looks to continue lifting these payouts.
Home Depot's shares trade for about 17 times trailing-12-month earnings. That's close to the company's lowest over the past five years and provides an excellent opportunity to get in on a stock that could boost your portfolio over time.
HD PE Ratio data by YCharts.
2. Lululemon Athletica
Lululemon Athletica (LULU 1.24%) is another company that has held up well during a difficult economy. The maker of yoga-inspired clothing has reported ongoing increases in earnings over the past few years. The company stayed connected with fans during the earlier days of the pandemic through its online community, Sweatlife, and kept digital sales climbing when stores were shut.
In fact, Lululemon even met all of the goals in its Power of Three growth plan, launched prior to the health crisis. Now, Lululemon has set out a new growth plan. This time around, the company aims to double revenue over a period of five years. That would bring annual revenue to $12.5 billion.
To do this, Lululemon aims to double sales of its men's line, double digital sales, and quadruple international sales. The company already doubled men's and digital, and quadrupled international as part of the Power of Three plan. Doing this again should result in major growth over a short period of time.
Lululemon isn't completely immune to today's economic troubles. The company is facing pressure on margins. For example, in Q3, adjusted operating margin fell 40 basis points year over year. Still, total revenue, digital sales, and gross profit each rose in the double digits in the quarter.
And Lululemon recently revised its Q4 guidance. It now expects net revenue to be in the range of $2.660 billion and $2.7 billion. That's up from an earlier estimate of $2.605 billion to $2.655 billion.
Today, Lululemon shares trade for 34 times trailing-12-month earnings. That compares to about 55 a year ago. Considering Lululemon's strength during difficult times, its track record of meeting growth goals, and its potential for growth ahead, this looks like a stock to snap up ahead of the next bull market.
