A bull market isn't here yet, but it may be on the way. History shows us difficult markets always lead to better market times. And bull markets definitely are worth waiting for. The average bull market between 1926 and 2017 lasted six times longer than the average bear market and delivered an average cumulative total return of more than 400%, according to Raymond James and First Trust data.
Growth stocks -- big or small -- tend to thrive in such an environment and could make excellent buys right now, as long as they're trading for a reasonable price. Now you might wonder: Which companies will actually lead the gains? They should have a strong earnings track record, solid future prospects, and leadership in their industries. Here are two high-growth players that have all of that -- and could power the bull market's next record run.
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1. Tesla
Automakers are gaining ground in the electric vehicle (EV) market, but Tesla (TSLA -1.11%) remains the leader by far, and its brand strength and innovation should keep it there. The company had a huge growth spurt last year, with total revenue climbing 50% and net income doubling to more than $12 billion.
Even in today's tough economic environment, Tesla managed to continue increasing revenue, production, and deliveries in the most recent quarter. The company remains profitable and posted a double-digit increase in its cash position to more than $26 billion, allowing it to fund current and upcoming projects.
Meanwhile, Tesla is preparing for the future by working to reduce the costs of producing its vehicles and to improve efficiency. At the same time, Tesla has ramped up investment in areas such as artificial intelligence (AI), which should eventually deliver cost savings too. These steps are weighing on earnings in the near term, but Tesla is likely to benefit over time.
Tesla also is seeing tremendous growth in two high-margin businesses: energy and services. Energy generation and storage reported a 40% increase in revenue in the quarter to more than $1.5 billion. And services revenue climbed 32% to $2.1 billion.
Tesla shares, trading at 65 times forward earnings estimates, aren't dirt cheap. But they're reasonably priced considering the EV giant's long-term prospects -- and they could soar from here as the bull market takes off.
2. Amazon
Amazon (AMZN 3.43%), an e-commerce and cloud computing services leader, recently proved its strength by successfully making its way through a tough period. Higher inflation weighed on Amazon's costs and consumers' wallets last year, and the company faced other challenges too -- like excess capacity after it doubled its fulfillment network in just two years. All of this led to Amazon's first annual loss in nearly a decade.
But Amazon set to work on its cost structure, cutting tens of thousands of jobs, improving efficiency, and shifting investments into its highest-growth areas. All of these moves produced significant results, evident in recent earnings reports. In the third quarter, for example, Amazon's net income more than tripled, free cash flow improved to an inflow of more than $21 billion from an outflow, and net sales advanced in the double digits.
Amazon Web Services (AWS), the cloud computing unit that generally drives profit, has seen a key improvement too. In the second quarter, customers started to deploy new projects and weren't as focused on limiting their budgets as they were earlier in the year.
Like Tesla, Amazon is investing in AI to improve its own efficiency -- and through AWS, Amazon offers top AI tools to customers. So, Amazon may become a leader in the AI revolution.
Today, Amazon shares trade for 52 times forward earnings estimates, down from more than 80 a couple of years ago -- a decent deal for a stock that has what it takes to win in the next bull market.
