Many investors consider the S&P 500 to be in rally mode, given its 15%-plus rise in 2023 thus far. It is still roughly 5% below its prior all-time high set in early 2022, though. A bear market is usually defined as the period after stocks decline by 20% or more, with a bull market being the reverse situation (showing an over 20% gain). By that measure we appear to be approaching the end of the latest bear market that began in early 2022.
And while growth stocks have generally performed well in the last few months as the fears of a tough recession have receded, there are still attractive deals available for patient investors. So let's take a look at a few excellent stocks to consider while the market is still working to set new highs. Read on for some good reasons to buy Lululemon Athletica (LULU 1.31%), Microsoft (MSFT 1.82%), and PepsiCo (PEP -0.62%) right now.
Lululemon is growing
Lululemon isn't facing anything like the growth hangover impacting other retailers today. Sales in the most recent quarter were up a blistering 27% to cross $2 billion, in fact, thanks to robust demand for its athleisure apparel.
Several big trends are helping lift results, including the chain's push into international markets, its entry into new product categories, and its booming direct-to-consumer segment. But innovation is the common denominator in all of these areas, keeping interest in its merchandise high. You can see evidence of success here in Lululemon's expanding gross profit margin, which improved to 57.5% of sales from 54% a year earlier.
Lululemon's operating profit margin is even more impressive at 20% of sales. And the stock is still available at a relative discount, with the valuation sitting just below 6 times revenue compared to its pandemic high of about 12.
Microsoft has cash
Microsoft shareholders are exposed to many huge growth trends, including cybersecurity, cloud enterprise services, artificial intelligence (AI), and video game entertainment. This fact alone helps explain why the stock has outperformed the market so far in 2023.
Yet another reason to like the stock is its market-leading profitability. The company turns over 40% of its sales into operating profit, making it one of the most efficient businesses around. That excess cash will increasingly find its way to investors, as evidenced by the software giant's recent 10% dividend increase.
But shareholders will likely see better returns from management's investment in growth initiatives like AI and its cybersecurity platform. Rather than having to pick individual winners in these niches, an investor can simply hold Microsoft stock to benefit from these expanding areas over the next several years.
PepsiCo is diverse
PepsiCo has raised its sales outlook for two consecutive quarters, yet the stock continues to trail the market in 2023. In fact, organic sales are up an impressive 14% through the first half of the fiscal year. And management believes this core growth figure will remain in the double digits for the full 2023 period. Earnings are expected to expand a bit quicker, too, rising 12% year over year.
KO Operating Margin (TTM) data by YCharts
Sure, the beverage and snack giant isn't as profitable as Coca-Cola, or the other growth stocks mentioned above. But investors' returns are boosted by Pepsi's generous dividend, which currently yields 2.7%. That income, in addition to the stability and growth that come along with this investment, make Pepsi a great growth stock to consider adding to your portfolio this year.
