With inflation moderating and the U.S. economy growing by a respectable 2.4% in the second quarter, fears of a recession are abating. Sparks of optimism have returned to the financial marketplaces as hopes for a new bull market take hold.
If you'd like to position yourself to profit from the stock market's next leg up, consider buying the following two stocks. These businesses are set to deliver handsome rewards to their shareholders as the economy grows stronger.
Devon Energy
A bull market would likely usher in higher oil prices, as accelerating economic growth typically leads to rising demand for energy. Leading oil and gas producer Devon Energy (DVN 0.19%) should enjoy sharply larger profits in such a scenario.
Devon employs a fixed-plus-variable dividend policy. That means it pays a consistent and reliable quarterly cash dividend, which is currently set at $0.20 per share, and a variable dividend that's tied to the amount of cash flow it produces (currently $0.29 per share). With the variable component set at up to 50% of its excess free cash flow, Devon's cash returns to shareholders could surge if oil prices rise.
Image source: Devon Energy.
Moreover, recently completed acquisitions and newly operational wells are helping to boost Devon's oil production. The company expects to produce as many as 330,000 barrels per day in the third quarter, up from 316,000 in the fourth quarter of 2022. With a breakeven price of $40 per barrel, and with oil prices currently near $80 per barrel, Devon's increased production should result in bountiful profits and cash flow.
Management is committed to passing a large portion of this cash on to its investors via the company's hefty dividend payout. With its current fixed-plus-variable dividend of $0.49 per share, Devon's shares now yield over 4%. And investors can expect to receive significantly higher cash payments if oil prices rise further.
Roku
A strengthening economy could also spur businesses to ramp up their marketing investments. As a leading streaming and digital advertising platform, Roku (ROKU -10.29%) would no doubt stand to benefit.
Roku aggregates the steadily expanding number of streaming services in one convenient location. Customers love the simplicity. Active accounts jumped 16% to 73.5 million in the second quarter. Engagement levels also continue to move in the right direction. People viewed more than 25 billion hours of content on Roku in Q2 alone. That's up 21% from the year-ago period.
These figures should continue to rise in the coming years, as more people ditch cable in favor of less expensive (and, increasingly, free) streaming options. Marketers know this, and they're shifting their ad spend to Roku's ad network.
To earn an even larger share of these ad dollars, Roku is innovating to create more value for its clients. It's using artificial intelligence (AI) to display ads during the most relevant parts of shows and movies on The Roku Channel. This improved relevancy should help to make its ad placements more effective and boost advertisers' returns on investment.
Roku's profits soared during the early stages of the pandemic when COVID-19-related safety measures prompted people to stay indoors and watch more streaming content. But as inflation and recession fears drove companies to pare back their ad spending, Roku posted losses in 2022 and the first two quarters of 2023. But Roku's losses are narrowing, and management expects the company to produce positive adjusted earnings in 2024.
Investors who buy Roku's shares now stand to be rewarded, particularly if a bull market accelerates Roku's return to profitability.
