The S&P 500 has been making significant strides in 2023, with a rally mode that has seen it rise by over 15% thus far. Despite this positive trend, the index is still roughly 5% below its previous all-time high, indicating that the bear market that began in early 2022 might be drawing to a close.
In this article, we will explore some growth stocks that present attractive opportunities for investors looking to capitalize on the market’s recovery. Lululemon Athletica, Microsoft, and PepsiCo are among the top contenders for market-beating returns.
Lululemon Athletica: Riding the Wave of Growth
Lululemon Athletica has emerged as a standout performer, avoiding the growth hangover that has affected other retailers. The company experienced a staggering 27% increase in sales in the most recent quarter, surpassing the $2 billion mark.
This impressive growth can be attributed to several factors, including its expansion into international markets, diversification into new product categories, and the success of its direct-to-consumer segment.
Lululemon’s commitment to innovation is evident in its expanding gross profit margin, which improved to 57.5% from 54% in the previous year. With an operating profit margin of 20% of sales, the company demonstrates robust financial health. Furthermore, Lululemon’s current valuation, just below 6 times revenue, offers investors a relative discount compared to its pre-pandemic high of approximately 12.
Microsoft: Capitalizing on Growth Trends
Microsoft, a tech giant, stands as an attractive investment option due to its exposure to various growth trends. The company’s portfolio encompasses cybersecurity, cloud enterprise services, artificial intelligence (AI), and video game entertainment.
Microsoft’s strong market-leading profitability is another reason investors are drawn to the stock. With a remarkable ability to convert 40% of its sales into operating profit, the company showcases exceptional efficiency. Microsoft’s commitment to shareholder value is evident through its recent 10% dividend increase, indicating that excess cash will be returned to investors.
Moreover, Microsoft’s strategic investments in growth initiatives such as AI and its cybersecurity platform position it to benefit from the expanding opportunities in these sectors over the coming years. By investing in Microsoft, shareholders can capitalize on multiple growth areas without the need to pick individual winners.
PepsiCo: Diverse Growth Potential
While PepsiCo may have trailed the market in 2023, the company has consistently raised its sales outlook for two consecutive quarters, showcasing its growth potential. Impressively, organic sales have surged by 14% in the first half of the fiscal year, and management anticipates double-digit core growth for the entire year.
Furthermore, earnings are projected to grow by 12% year over year. Although PepsiCo’s profitability may not rival that of Coca-Cola or the aforementioned growth stocks, the company offers investors a generous dividend yield of 2.7%. This income, coupled with the stability and growth prospects associated with the investment, makes PepsiCo an enticing growth stock to consider adding to one’s portfolio this year.
Seize Opportunities with Promising Growth Stocks as Bear Market Fades
As the bear market that began in early 2022 shows signs of nearing its end, investors seeking market-beating returns should consider the potential of growth stocks.
Lululemon Athletica’s impressive sales growth, innovation-driven strategies, and attractive valuation make it an appealing choice. Microsoft’s exposure to multiple growth trends, market-leading profitability, and commitment to shareholder value further enhance its investment appeal. Additionally, PepsiCo’s consistent sales growth, dividend yield, and stability position it as an enticing growth stock.
By carefully considering these opportunities, investors can navigate the market landscape and potentially secure attractive returns in the midst of the S&P 500’s recovery.
