2 Stocks for the Next Bull Market

With the stock market nearly in freefall, few companies look particularly attractive on a short-term basis. As with other downturns, though, this one will eventually resolve into a new bull market cycle. When that happens, stocks that are severely depressed today could become serious winners. Here are two stocks to look at for the next bull market.

 

Social media site Pinterest (NYSE:PINS) is often overlooked in favor of competitors such as Meta and Twitter. During the next bull market, though, Pinterest could finally have its chance to shine.

 

The largest argument in favor of Pinterest is the company’s increasing revenue per user. In Q2, revenue per user rose 17 percent, reaching $1.54.

 

This trend provided an important counterbalance to a user base that shrank 5 percent during the same period. The ability to capitalize on a smaller, highly engaged user base could allow Pinterest to remain relevant while other platforms struggle.

Pinterest’s lack of debt could help it navigate the interest rate hikes that will affect more heavily indebted companies. Debt avoidance also helps to offset Pinterest’s rather high P/E ratio, which is now over 43 times earnings.

 

A final development in Pinterest’s favor is its new eCommerce focus.

 

Rather than generating revenue strictly through advertising, Pinterest plans to begin taking a more direct role in selling products through its Promoted Pins feature. This strategy could prove to be a large source of revenue, particularly when market conditions improve and consumers are more confident in non-essential spending.

 

Pinterest stock is not expected to perform particularly well this year. Analysts expect PINS to rise to $25.30 over the next 12 months, an increase of just 8.5 percent from its current price. Next year, though, the company is projected to grow by as much as 31.6 percent. This rapid growth could help Pinterest regain some of the ground it has lost this year and potentially reward investors.

 

Despite having long-term potential, Pinterest also carries certain risks. Most notably, Pinterest faces steep competition from larger social media companies. TikTok and Instagram are both direct competitors to Pinterest that have moved more aggressively toward monetizing their user bases.

 

While the shift to eCommerce may help Pinterest regain ground, it could still find itself locked in a battle with much more dominant social media companies.

 

However, the opportunities Pinterest has when the market rebounds likely outweigh its risks. With minimal debt and a solid strategy for growth, there’s good reason to think that Pinterest stock could climb when the market recovers.

 

Used car seller Carvana (NYSE:CVNA) has been one of the hardest-hit stocks of 2022, losing more than 90 percent of its value year-to-date. While this company obviously comes with its share of risks, this massive shedding of value may make it a good buy for risk-tolerant investors looking for high-growth options.

 

At the moment, Carvana is making aggressive spending cuts that management hopes will improve gross profits. By increasing the efficiency of its spending, Carvana was able to raise its gross profit per vehicle by over $500 in Q2.

 

Further spending cuts could produce even higher gross margins, eventually helping Carvana achieve profitability.

Carvana has also made improvements to its infrastructure that should eventually facilitate more sales. The most notable of these was the acquisition of a major physical auction business earlier this year.

 

Increased sales capacity and higher gross margins could work synergistically, improving both the fundamentals of the business and the price of the stock.

 

Over the next 12 months, analysts give Carvana a median price target of $50. If this target proves accurate, the stock would return an astronomical 146.4 percent against its current price of $20.29. This gives the stock a great deal of room to underperform expectations while still producing gains that justify Carvana’s inherent business risks.

 

With that said, Carvana’s near-term growth prospects may be limited. With used car prices having fallen for multiple consecutive months, Carvana can no longer coast on sky-high auto pricing.

 

The company has also seen its credit rating fall to Caa1, even as its debt levels have increased. This rating reflects high credit risk and substantially increases the future costs of borrowing money.

 

In terms of value, Carvana is a mixed bag. The company still has not achieved profitability, and current market trends suggest that it could be some time before earnings turn positive. However, the stock trades at a ratio of just 0.26 to sales, far below the industry average of 1.3. This positive point is offset, though, by a troubling debt-to-equity ratio of 7.64.

 

Overall, Carvana is a high-risk, high-reward stock. The company’s debt level is a structural issue that could slow growth, while the combination of a slowing economy and rising interest rates will likely depress auto sales in general.

 

When the next bull market begins, however, Carvana could be in a good position to take off again. Assuming the company can keep its margins up and continue selling more vehicles, Carvana could produce outsized returns for investors.

 

Both Pinterest and Carvana have significant potential going into the next bull market, but they fill very different roles within a portfolio. Pinterest seems to be a decent choice for steady growth without outsized risks.

 

Carvana, on the other hand, has the potential to rise by 100 percent or more on a relatively short time frame. Its high debt load and the costs associated with its acquisitions, though, make it an inherently riskier investment.

 

With that said, Pinterest is likely better for investors seeking a medium-risk stock that could grow at a steady rate over several years. Carvana, meanwhile, is a better fit for highly risk-tolerant investors looking for large, rapid returns. Due to its risks, it may also be a good idea to keep Carvana positions small to mitigate the chance of losses.

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