The stock market has been rallying this year, but over the past 12 months, the S&P 500 remains down 6%. A bull market isn't here just yet but it could arrive sometime this year. The rate of inflation has been declining and if that continues, a more bullish outlook will inevitably follow for the economy, which could trigger a bull market.
A bull market will come; it's just a matter of when. Three stocks that are good investments to load up on before that happens are CVS Health (CVS -0.65%), Alphabet (GOOG -1.96%) (GOOGL -1.97%), and Shopify (SHOP -2.37%). Here's why these stocks could take off.
1. CVS Health
Healthcare giant CVS Health could see its valuation head higher when the bull market resumes. The company's recent efforts to become larger and more diversified in the healthcare industry should enable it to bring in even more revenue than the already mammoth $322 billion in sales it reported for 2022.
Pending acquisitions of home health company Signify Health and primary care operator Oak Street Health make CVS an attractive option for investors looking to gain exposure into healthcare as they would complement a business that is also involved in health insurance (Aetna), pharmacy benefits management (Caremark), and of course, running drugstores.
Today, CVS trades near its 52-week low and is at a forward price-to-earnings multiple of only 10, suggesting investors aren't paying much of a premium for it (the S&P 500 averages a forward earnings multiple of 19). In a bull market, CVS could become a much hotter buy than it is right now.
2. Alphabet
Alphabet's search engine, Google, and video-sharing platform, YouTube, are two of the tech giant's most prized assets. They attract a lot of ad dollars, but the problem is that the ad market hasn't been strong of late; advertisers are reducing their spending as businesses cut back amid concerns of rising inflation and a possible recession.
If a bull market has begun, that means the economic outlook will likely be more favorable and those aren't issues weighing down investors anymore. And that will mean ad dollars should flow into Alphabet's business. In the last three months of 2022, Google's advertising revenue totaled $59 billion and was down 3.6% year over year.
That doesn't happen if the economy is strong and advertisers are spending money. That's why if you're bullish on a recovery, this is a stock worth buying now. While there are some concerns about ChatGPT and rival Microsoft potentially having an advantage in search by utilizing artificial intelligence, Google can and will adapt, and investors also shouldn't forget it has been the dominant name in search for the past two decades; it isn't going to give up its position easily.
Down 28% in the past year, Alphabet stock could be a good buy on the dip, before the bull market starts up again.
3. Shopify
One great way to bet on a stronger economy is to invest in e-commerce business Shopify. The company's online platform will likely benefit from a surge in spending when stronger economic conditions exist. And while it's difficult to predict when that might happen, the positive is that the business is still doing well today.
For the last quarter of 2022, the company reported revenue of $1.7 billion, which was a 26% increase from the prior-year period. But despite beating expectations, the stock has continued to struggle as it left investors with underwhelming guidance, calling for revenue growth that would only be "in the high-teen percentages" for the first quarter of 2023. That suggests a sharp decline and signs that the business is seeing more of a slowdown than investors were anticipating.
But these are short-term concerns. With the company focusing on cutting costs and raising prices, Shopify could be a stronger business in the long run, and that's something that growth investors will value. However, it may not be until a bull market emerges that Shopify is a hot buy again. Even though it has been rallying this year, the stock is still trading around the levels it was at back in early 2020. Buying it before a bull rally takes off may be a great move.
