It's never too early to start planning for the next bull market. Those days of market gains and optimism will be back. History tells us so -- bull markets always have followed bear markets.
So, how should you prepare? By taking advantage of the low prices a down market offers us and buying quality companies that could win over time.
This leads me to growth stocks. They've been particularly hard hit over the past year. But the long-term outlooks for many of these companies remain bright. What this means is you can scoop up these exciting players for a bargain today -- and then likely benefit during the next bull market.
Let's check out five top growth stocks that should be on your buy list.
1. Teladoc Health
Teladoc Health (TDOC -2.40%) has seen revenue soar in the triple digits and double digits over the past few years. The telemedicine leader serves more than half of Fortune 500 companies -- and still has plenty of room to grow.
Investors have worried about Teladoc's lack of profitability so far. And billion-dollar noncash goodwill impairment charges last year -- linked to a 2020 acquisition -- weighed on the stock.
But Teladoc recently made a move that shows it's serious about generating a profit. The company has shifted its strategy to balance growth and what's needed to make it to profitability. Teladoc started by cutting some jobs and office space earlier in the year.
Meanwhile, revenue and visits continue to climb in the double digits. And members of its integrated care service and users of its metal health service BetterHelp have steadily gained from quarter to quarter.
Trading at its lowest ever in relation to sales, Teladoc looks like a screaming buy.
2. Lululemon Athletica
Lululemon Athletica (LULU 1.31%) has been on a winning streak that may just be getting started. The company reached the goals of its Power of Three growth plan early -- and now it's working on a new plan to further boost growth in the areas of digital, menswear, and the international business.
The maker of yoga-inspired clothing is off to a good start. The company increased revenue in the fourth quarter by 30%. And its brand strength helped it do this without having to heavily rely on promotions. Womens wear, men's, accessories, and digital all grew revenue in the double digits on a three-year compound annual growth rate basis.
And last year, in spite of challenges like supply chain problems and coronavirus disruptions in China, the company surpassed its revenue goal -- and delivered an adjusted operating margin that met its goal. All of this strength, plus Lululemon's product innovation, make me confident about the company as the economic environment improves.
Trading at 31 times forward earnings estimates -- down from more than 40 last year -- this is a stock to buy on the dip.
3. Etsy
Etsy (ETSY 0.34%) saw revenue soar in the triple digits during the earliest stages of the pandemic as shoppers favored e-commerce over traditional stores. Since, things have cooled. Consumers still turn to Etsy -- but they're also shopping in stores again. And the general economic headwinds have hurt Etsy too.
Still, Etsy has managed to keep a lot of the growth it gained over the past few years. From a revenue perspective, Etsy is three times bigger than it was back in 2019. And new buyer acquisition in the fourth quarter climbed 60% from the fourth quarter of 2019.
Profitability is also a plus at Etsy. The company delivered adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $227 million in the fourth quarter, up about 3% year over year. That's in spite of the challenging economic environment. Finally, Etsy's capital-light business model has helped it turn most of its EBITDA into free cash flow.
All of these elements signal a bright future for this e-commerce player. That's why, at 27 times forward earnings estimates, the price looks right.
4. InMode
InMode (INMD 0.70%) sells radio frequency-based devices used in a wide variety of aesthetics and women's wellness procedures -- for example, laser hair removal or rehabilitation of weak pelvic floor muscles.
The global nonsurgical aesthetics market is set to grow in the double digits through 2030, according to Precedence Research. InMode is already benefiting. Earnings have been on the rise at the company over the past several years.
INMD Net Income (Annual) data by YCharts
And in the most recent quarter, InMode reported record levels of quarterly revenue and non-GAAP (generally accepted accounting principles) net income. Revenue advanced 21% to more than $133 million. And non-GAAP net income climbed 20% to $66.4 million. Importantly, the company has been able to maintain a gross margin of more than 84%.
InMode's stock hasn't yet benefited from this growth -- and this equals opportunity for long-term investors. The shares have slipped about 7% this year, and they're trading for about 12 times forward earnings estimates right now. This looks dirt cheap considering the company's performance so far and potential down the road in the high-growth aesthetics industry.
5. Moderna
Moderna (MRNA 1.69%) took center stage during the early days of the pandemic. The coronavirus vaccine maker brought the product to market and delivered billions of dollars in earnings. Since the vaccine is Moderna's only product right now, some investors worry about the company's future.
But things look bright for this biotech player. First, vaccine revenue isn't likely to disappear, and it still may come in at blockbuster levels. Moderna predicts the post-pandemic market will mirror that of the flu shot market. And that should translate into significant recurrent revenue.
Moderna also has other potential products in the works, and some are even very close to market. The company aims to file approval requests for its investigational respiratory syncytial virus (RSV) vaccine in the first half of this year. Moderna also has flu and cytomegalovirus (CMV) candidates in phase 3 trials right now. Those could lead to commercialized products over the next few years too.
It's hard to value Moderna using traditional methods, since the coronavirus vaccine market is at a transition point. But it's clear that Moderna shares could head significantly higher over time -- and could take off during the next bull market.
