Last year, the three major indexes slipped into bear territory, and ever since, the question on everyone's mind has been this: When will the next bull market start? That's impossible to answer, even in a rising market such as the one we've known this year. To officially declare a bull market from this point, indexes must reach a new high. And that hasn't happened yet.
So, how can we be so sure a bull market is on the way? Because history shows us bear environments always lead to these periods of expansion. It's just a matter of time. And while we wait, we can prepare by buying stocks that generally excel in a strong market environment. So, as you get your portfolio ready for the new investing year, here are three top stocks to buy -- to position yourself for a potential bull market win.
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1. Shopify
Even if you've never heard of Shopify (SHOP 1.11%), you probably have contact with the company on a daily basis. That's because Shopify helps many of your favorite e-commerce companies operate their online stores -- providing a variety of services from creating the website to tracking sales and managing inventory.
Shopify generates revenue in part through services to these clients -- including payment processing fees. So, when clients' revenue climbs, this is great news for Shopify. Most recently, Shopify said its merchants' Black Friday-Cyber Monday sales reached a record high of more than $9 billion. It's also important to note that Shopify is the e-commerce software market leader, with 28% share, according to Statista.
The e-commerce giant has demonstrated a solid growth track record, and in the most recent quarter gave us reason to believe the growth will continue. Revenue and gross profit advanced in the double digits, and the company was free cash flow positive for the fourth straight quarter.
Though Shopify has soared about 100% this year, there's still plenty of room for this stock to rise over the long term -- and especially in a bull market.
2. Etsy
If you're shopping for gifts these days, you may have stumbled across Etsy (ETSY 0.34%), a seller of handmade items. But one of the biggest Etsy deals may actually be Etsy stock.
Here's why. First, this company's capital light structure means it doesn't have to invest heavily to grow its business. For example, Etsy sellers run their own shops and take care of stocking and shipping their wares -- so Etsy doesn't have to invest in storage and transport. This capital light structure makes it possible for Etsy to transform 90% of its adjusted EBITDA into free cash flow.
Second, Etsy has managed to keep customers coming back even through tough economic times. This year, habitual customers stabilized at 7 million, and active customers reached a record high of 92 million. The loyalty of customers offers us reason to be confident about future revenue. I also like the fact that Etsy is profitable and has about $1.1 billion in cash.
Meanwhile, the shares trade for 16 times forward earnings estimates, which looks dirt cheap for this solid e-commerce player.
3. Apple
Apple (AAPL -0.35%) has a growth track record that speaks for itself. The company has increased key financial metrics, such as earnings and return on invested capital, over time.
AAPL Revenue (Annual) data by YCharts
This is thanks to top products such as the iPhone and Apple Watch, but recently, another area has stood out. And that's services. Now that Apple has built up such a huge user base, it can keep the revenue flowing in by selling services to them. That's exactly what the company has been doing, and it may just be Apple's next big growth driver.
By services, I mean anything from digital content to cloud storage. In the most recent quarter, services revenue reached a record high -- and this momentum is likely to continue thanks to more than 1 billion paid subscriptions.
Apple has what it takes to perform in bear markets and bull markets due to its moat, or competitive advantage. And Apple's moat is its brand strength, with most buyers of Apple products eagerly waiting for the next iPhone or Mac. But, clearly, in a strong market environment, Apple's earnings and shares can truly thrive, making it a top bull market buy.
