The economy is still sending mixed messages, with slowing growth, high interest rates, and persistent inflation. The stock market reflects that, and the hoped-for bull market still hasn't panned out. In fact, this is the longest bear market since 1973 -- longer than the bear markets resulting from the crashes in both 2001 and 2008.
Many economic experts are forecasting a recession, which would put American economic activity even deeper in the negative. No one knows what will actually happen, and surprises keep cropping up; consider the turmoil in the banking sector, with the newest casualty being First Republic Bank.
Whatever happens over the short term, investors should remember that a bull market always follows a bear market. It's exactly at this time, when prices are down, and the forecast looks ominous, to plant seeds for the future. To prepare for that time, buy stocks that could soar in a bull market. Airbnb (ABNB 0.75%) and Lululemon Athletica (LULU 1.31%) are two top choices.
1. Airbnb: Leading a travel revolution
Airbnb made a huge comeback after suffering pandemic declines, but after posting rebound increases in the triple digits, growth has been decelerating. This shouldn't alarm investors; it's a normal progression. And although Airbnb may be past the astronomical growth phase, it has a massive growth runway that should stay in the double-digit range for the foreseeable future.
Revenue increased 40% over last year in 2022, although that trickled to 24% in the fourth quarter. In the meantime, profitability has been significantly improving. Airbnb has now posted several consecutive quarters of profits, demonstrating the ability to sustain its viability. The operating margin held steady as well.
ABNB Operating Margin (TTM) data by YCharts.
There are plenty of reasons to be excited about the future. One is simply the scope of where Airbnb is today. It's the leading travel company of its kind, with the name Airbnb often substituting for the term vacation rental. That's incredible brand power. It's constantly adding new hosts, users, and rentals, which spins an upward cycle and reinforces its leading status.
Part of what makes it such a compelling business is its adaptability. Although it did experience severe declines at the beginning of the pandemic, it bounced back much faster than traditional counterparts due to its broader options, including local and residential areas. However, it's also benefiting as travelers return to big cities.
One of the strategic priorities that management set forth for 2023 is to expand beyond the core, and the company mysteriously alluded to some new and exciting projects "that will provide incremental growth for years to come." I'm excited to find out what these are, and hopefully, management will provide an update when it reports first-quarter earnings next week.
2. Lululemon: A fresh approach to activewear
Lululemon's strategy of premium branding, high-quality products, and connection with its customers helped it stand out among a growing number of competitors and grow its business. It has demonstrated robust sales increases, strong profitability, and a path toward capturing even more market share.
Revenue increased 30% year over year in fiscal 2022 (ended Jan. 30) to $8.1 billion, with a solid 25% increase in comparable sales (comps). Earnings per share (EPS) decreased from $7.49 to $6.68, and adjusted EPS, which takes out Mirror-related charges and a building sale, increased from $7.79 to $10.07, beating Wall Street estimates.
Both gross margin and operating margin declined slightly from last year. In the short term, Lululemon is feeling the pressure of inflation. However, these numbers are much higher than the competition, including Skechers, Under Armour, and even premium rival Nike.
LULU Gross Profit Margin data by YCharts.
Customers are taken with the company's better merchandise and emphasis on customer relationships. Its niche target of an upscale clientele gives it resilience, and its core, seasonless product line is less prone to markdowns.
Lululemon reached its goal of doubling revenue ahead of schedule, and the company has set the same goal again for 2026. Its objectives to attain it again are to double men's and direct-to-consumer sales and quadruple international sales through new products, new markets, and an enhanced guest experience.
Lululemon is a top stock pick that could soar in a bull market and reward shareholders for years to come.
