This may be the moment we've all been waiting for. Bear market days could be behind us -- or almost. Some are saying a bull market is here. That's because, last week, the S&P 500 finished exactly 20% above its October low. It still may be a bit early to call this a bull market, though. Generally, something else should happen, too: The index should record new all-time highs.
In any case, we have reason to be optimistic. Bull markets always follow bear markets. And even if we're not there yet, we're getting close. What can you do to prepare? Buying a couple of top growth stocks is a great idea. Those with solid businesses and long-term prospects could excel in a new bull market. Here are two to add to your holdings right now.
1. Etsy
Etsy (ETSY 0.34%) has proved that it's not just a pandemic stock. Sure, the early days of the health crisis offered the e-commerce company a boost. As people favored buying online, Etsy's gross merchandise sales (GMS) soared in the triple digits.
But Etsy also has managed to keep those gains. Metrics like GMS and active buyers have climbed in the triple digits from four years ago through today. Etsy also continues to report a profit. And, in the most recent quarter, the company's cash position topped $1 billion.
How has Etsy done this during tough economic times? There are a few reasons for Etsy's success. The company has a capital-light business model. That means it doesn't have to make huge capital investments to grow. For example, Etsy doesn't invest in storage or transportation for items sold on its website. Individual sellers take care of that. As a result of its capital-light status, Etsy can transform about 90% of its adjusted EBITDA into free cash flow.
Etsy attracts sellers because it continues to make its platform an ideal place for them to sell their goods. The company invests in tools and data to help sellers grow their Etsy shops. And Etsy also invests in search functions to make it easy for buyers to find what they need.
Now, let's talk valuation. Etsy shares today trade for 21 times forward earnings estimates -- down from more than double that last year. That's a steal, considering Etsy's strength during tough times -- and how that strength could equal growth down the road.
2. Lululemon Athletica
Lululemon Athletica (LULU 1.31%) seems unstoppable. The maker of yoga-inspired clothing met and even beat targets of its Power of Three growth plan -- launched just before the pandemic. A big part of its success is Lululemon's connection with its fans. The company offers them not just clothing, but a lifestyle. That's through its "sweatlife" community, featuring exercise tips, yoga classes, and inspirational stories.
Then, last year, Lululemon announced a Power of Three x2 plan. The goal here is to double annual revenue to more than $12 billion by 2026. Lululemon aims to do this by doubling growth at its men's business and digital business -- and quadrupling international revenue.
Here's why I'm confident the company can do it. Lululemon's connection with its fans is so strong that it's managed to continue growing during these difficult economic times. In the most recent quarter, the company increased net revenue, gross profit, and income from operations in the double digits. Digital sales also climbed in the double digits.
The company showed confidence in its own future by buying back about $98 million in common stock in the quarter. Lululemon opened seven new stores, and the retailer also said it remained on target to fulfill the goals of its new growth plan. Lululemon even forecasts double-digit revenue growth for the upcoming quarter and for the full year.
I wouldn't call Lululemon shares dirt cheap. They trade for 30 times forward earnings estimates. That compares with about 10 for the apparel industry. But Lululemon's ongoing growth and ability to meet growth plan goals even during difficult times make it well worth this price. And these two elements also make it a stock likely to win in a new bull market.
