It's a tricky time for investors. The economy seems like it's finding a footing that will allow it to sidestep a recession. But thanks to the S&P 500's 20% rally just since March's low, further gains could be a bit tougher to muster. A bunch of stocks already look and feel overvalued at their current price.
As the old adage goes, though, expect it when you least expect it. There's no particular reason the market can't follow its current path with even more bullishness, with or without suffering a pullback first. That's why you may not want to wait on the sidelines too long hoping for a big pullback before stepping into growth stocks.
Let's look at three such tickers to consider stepping into sooner rather than later. Spoiler alert: Two of these three names can be found on several lists of stocks to buy. While popular picks, that doesn't necessarily mean they're overcrowded trades right now.
1. Apple
Apple (AAPL 0.41%) is such a frequently recommended stock that it's almost become a cliche. Don't let that deter you from stepping into a position, though. This company is the real deal and will remain so for the foreseeable future.
You mostly know it by its biggest profit center, the iPhone. The popular smartphone not only accounts for roughly half of the company's total revenue, but it is also the single-best-selling smartphone brand in the world. Apple didn't reach that point and stay there with mere luck.
The reason the company is such a powerhouse (and the reason Apple is a perennial must-have stock) isn't just the high quality of its flagship device. It's the company's loyal customer base who are now fueling the growth of its digital ecosystem.
Consumer Intelligence Research Partners quantifies this with two telling data nuggets. First, of all consumers using Android-powered mobile devices, only 4% of them are former owners of Apple devices. Second, of all current iPhone owners, 14% of them are former Android users. The vast majority of Android-to-iPhone users switched because they had problems with their Android phones and were seeking a higher-quality device.
And once someone joins the iPhone fray, they tend to dive all the way into the use of their device. Numbers from Sensor Tower indicate iPhone and other iOS users collectively spend nearly twice as much on apps as Android users spend at the Google Play store.
The point is, Apple is building a much more compelling, seamless, revenue-extracting experience, and consumers are willing to pay a premium for it over and over again. That's why Apple has been one of the market's most rewarding stocks in recent years.
2. Etsy
If you think Etsy (ETSY 0.02%) is just a place for grandma to sell her hand-knitted hats, you may want to take a look at what the website's actually become since its launch back in 2005. It's now a place to purchase a variety of vintage (used), custom-made, one-of-a-kind clothing, decor, accessories, gifts, toys, and more.
More to the point, it's become quite "cool," providing a sales platform for handcrafters like no other platform out there.
That hasn't helped the stock of late. While shares soared during the COVID-19 pandemic simply because a massive amount of commerce moved online during that time, the bulk of that gain was given back last year. The stock's continued to drift lower this year, with most investors looking for more aggressive growth -- particularly from the tech sector. The lethargic economy hasn't helped.
Don't be fooled by this subpar performance, though. Etsy's doing what it's supposed to be doing. Sales are expected to improve 7% this year before accelerating to a growth rate of 10% in 2024. That should pump up 2022's projected bottom line of $2.38 per share to $3.05 per share next year. Then things should really take off. The analyst community is calling for per-share profits of nearly $8 by 2027 on a near-doubling of its current top line.
The key to this growth is a seismic shift in consumer preferences. Perhaps prompted by the pandemic, a bunch of former fans of mass-made merchandise sold through chain stores are now favoring more personalized, one-of-a-kind goods. Research from IMARC Group suggests the global handicraft market will grow at an annualized pace of more than 9% through 2028, playing right into the hand Etsy is holding.
3. Amazon
OK, Amazon (AMZN -0.46%) is at the extreme other end of the same spectrum Etsy's on, by virtue of being one of the mass market institutions some consumers are increasingly shunning. But keep things in perspective. Amazon is still the most convenient and cheapest place to purchase plenty of goods. Not everything you want is better if it's handmade.
And there are two huge other reasons Amazon stock is a compelling prospect right now. The first of these reasons is cooling inflation.
Investors keeping close tabs on the company's recent quarterly reports will likely know Amazon's e-commerce operations slipped into the red last year in the wake of soaring costs. These losses were more than offset by strong profit growth from its cloud computing arm Amazon Web Services.
We're finally starting to see some inflation relief, however. Amazon's North American arm quietly eased back to profitability in the first quarter of this year thanks to lower expenses, and price growth has further abated in the meantime. The Bureau of Economic Analysis' personal consumption expenditures index -- the inflation gauge the Federal Reserve watches most closely -- fell to a two-year-low growth rate (excluding food and energy) of only 4.1% in June. As such, look for Amazon's e-commerce operation to continue improving its profit margins.
And the second reason Amazon is a buy? That's the aforementioned Amazon Web Services. It's still an incredible growth engine and will be for a long while. During the first quarter of this year, Amazon Web Services' revenue grew another 16% year over year, and while its year-over-year operating profits actually fell in the quarter, that drop's purely a function of inflation as well. Once those costs start to cool off, Amazon Web Services' profit margins could explode back to pre-2022's impressive levels.
In this vein, know that Mordor Intelligence expects the cloud computing market to grow by more than 16% per year through 2028. As the cloud computing market leader, Amazon is positioned to win at least its fair share of that growth.