After a brutal bear market, many stocks have begun to recover their losses in 2023. Some companies have seen their share prices surge in January as early signs of a new bull market emerged.
If you’re thinking you’ve already missed the bottom, don’t despair. Strong rallies off bear market lows are often just the early stages of larger, long-term upward moves in the stock market. So today is still a great time to invest.
To help you position yourself to profit from the next bull market, here are two stocks with excellent long-term growth prospects that could continue to soar.
Higher mortgage rates have taken a heavy toll on the housing market. U.S. existing home sales plunged 17.8% in 2022, marking the worst annual decline since the 2008 financial crisis. This brutal downturn severely impacted Redfin‘s (RDFN 1.65%) business, and the real estate brokerage’s shares plummeted more than 80% last year.
However, with inflation moderating, mortgage rates have declined from their highs in recent weeks. That’s bringing buyers back to the housing market. Mortgage purchase applications surged 25% during the week ended Jan. 13, compared to the prior-week period, according to Redfin. That’s a powerful signal that home sales are about to increase, particularly if mortgage rates continue to fall.
Redfin, meanwhile, is down but far from out. The discount brokerage’s value-focused approach is helping it win market share in the massive U.S. housing industry. Home sellers can pay listing fees as low as 1% with Redfin, while competing brokerages typically charge fees of over 2.5%. For a $400,000 home sale, that’s a difference of over $6,000 in savings.
Moreover, Redfin isn’t just waiting for a housing rebound to lift its boat. The company shuttered its money-losing home-flipping division to cut costs and refocus on its higher-margin brokerage operations. By streamlining its business and focusing on what it does best, Redfin is now in a far stronger position to achieve sustained profitability as the real estate market recovers.
Investors are starting to catch on to Redfin’s awesome potential. Its stock price is already up 33% so far in 2023. Yet, Redfin’s current market value of roughly $615 million still understates the likelihood that it will continue to earn more market share — and the profits that come with it — in the $100 billion U.S. existing home sales industry.
Thus, the recent rally in Redfin’s share price might just be getting started, and more gains could still lie ahead for investors who buy its stock today.
Like Redfin, Netflix (NFLX -0.24%) is off to a fast start in 2023. The streaming leader’s stock price is up 25% so far this year. It’s easy to see why. After a rocky 2022, Netflix’s expansion strategy is back on track.
Netflix added 7.7 million subscribers in the fourth quarter, fueled by popular new shows and the long-anticipated launch of a new ad-supported offering. The company’s fledgling advertising business is off to a solid start. Chief Financial Officer Spencer Neumann expects ads to eventually generate at least 10% of Netflix’s total revenue. That would equate to more than $3 billion annually, based on its nearly $32 billion in revenue in 2022.
Plenty of growth likely lies ahead for the streaming giant. Netflix accounts for less than 10% of the time people spend watching TV in large markets, such as the U.S. and the U.K., and an even smaller percentage in many international markets.
Better still, unlike most of its competitors, Netflix is generating more cash than it needs to fund its growth initiatives. The company expects to produce $3 billion in free cash flow this year. Management intends to return some of this cash to shareholders via stock buybacks, which should further help to support a rising share price.
For all these reasons, Netflix appears well-positioned to deliver even more gains to investors in the coming year.
Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Redfin. The Motley Fool recommends the following options: short February 2023 $7 calls on Redfin. The Motley Fool has a disclosure policy.