Are we currently in a bull market? Some argue that we are. In early June, the S&P 500 closed 20% up from its most recent low, which is the technical definition of a bull market. However, equities haven't exactly felt "bullish" this year, and some analysts would argue that an index needs to hit a brand-new high before we officially call it a bull market.
Whatever the answer is, one thing is for sure: The market will eventually enter a bull market. And once it does, these two stocks could help investors earn solid returns throughout it and beyond: Medtronic (MDT 0.62%) and Alphabet (GOOG 9.96%) (GOOGL 10.22%). Let me explain.
1. Medtronic
Medtronic's core business isn't particularly exciting. The company manufactures and sells various medical devices and equipment. However, because physicians and surgeons rely on many of its gadgets to perform essential services on which the health of their patients depends, Medtronic's business is solid and reliable. The healthcare giant records consistent revenue and profit, routinely earns clearance for new devices, and expands into new growth areas.
In its fiscal 2024's second quarter (ended on Oct. 27, 2023), Medtronic's revenue of $8 billion increased by 5.3% year over year. The company's adjusted earnings per share of $1.25 decreased by 4% from the year-ago period, but that was entirely due to unfavorable currency exchange fluctuations. Medtronic's revenue is well-diversified across several therapeutic areas and regions around the world.
Only a global issue -- such as a pandemic -- could seriously disrupt this level of diversity. And yes, Medtronic's business struggled in the earlier days of the coronavirus outbreak, but it is recovering nicely. Although it lagged the market this year, Medtronic plans to boost its revenue growth, which should help it perform better. The company is in the process of separating its patient monitoring and respiratory care businesses, which often grow at a slower pace than other units.
Medtronic will double down on what it sees as high-growth opportunities, including diabetes care and robotic-assisted surgery, among others. Medtronic's dividend remains one of the best reasons to buy the stock. The company has now raised its payouts for 46 consecutive years and is racing toward Dividend King status. Its yield of 3.48% as of this writing is competitive.
Investors might be worried about its cash payout ratio of 90%, a high number indeed. However, given Medtronic's track record, there is little reason to worry. Few companies can raise their dividends yearly for more than four decades without sometimes encountering high payout ratios. Medtronic is unlikely to suspend this streak, especially given the strength of its underlying business.
The medical-device specialist should be able to provide solid returns, especially to those who opt for dividend reinvestment, well beyond the next bull market.
2. Alphabet
Alphabet has been in a bit of a bull run this year, with its shares up by 49% as of this writing. The company is benefiting from a rebound in the advertising market, its largest source of revenue, which was incredibly weak last year. Alphabet's financial results have recovered accordingly. In the third quarter, revenue of $76.7 billion increased by 11% year over year. The company's EPS of $1.55 was about 46% higher than the year-ago period.
There was never any doubt that the tech giant would bounce back, and the good news is that there is plenty of growth left for the company. One of the strengths of Alphabet's business is its leadership in multiple high-growth industries, from cloud computing to artificial intelligence (AI) to streaming. Take AI, which, well before the ChatGPT craze that swept through Wall Street this year, had long been a key component of some of Alphabet's Google updates.
The company is also a leader in generative AI, which it showed by launching its ChatGPT competitor, Bard. The unveiling of Bard was a bit disappointing, but it is still impressive that Alphabet was able to release it so quickly once ChatGPT started making waves. There is always the chance that another company will knock Alphabet out of the race in its key markets, but that seems unlikely.
The term "Google" has become a verb used in everyday language, and even Microsoft's AI-induced Bing competitor couldn't make much of a dent in that empire. Alphabet's Google also benefits from a network effect, as does YouTube. Lastly, its cloud computing services typically carry high switching costs. In other words, Alphabet benefits from an economic moat from multiple sources, not to mention the company's ability to generate cash to pour into research and development.
The tech giant's has long been an innovator. Alphabet's business is far too solid to crumble anytime soon unless something catastrophic happens. Can maintain the momentum it has had this year? Maybe, maybe not. But over the long run, and through multiple bull markets, Alphabet could continue delivering above-average returns to its shareholders.
