I read with interest my Foolish colleague Kevin Godbold’s piece on why he thinks we could be starting a raging bull market. Easing supply chain costs and rising prices of investment trusts are two points he flagged up. From my point of view, I want to think about how I can take this and find top growth stocks that could benefit from this move. Here are my favourites.
Easing pressures = better performance
My thinking to begin with is to go for the companies that have been pained by the supply chain costs so far this year. For example, car manufacturers and retailers.
Tesla is a classic growth stock. In the past, I’ve been skeptical about buying, given the inflated valuation and heady share price moves. However, it’s lost 25% in value in 2022, now trading just below $900. Although I still think the price is a little rich, a new bull market would likely pull Tesla shares higher with renewed optimism.
Further, the company has flagged up that lower vehicle deliveries in Q2 versus Q1 was partly down to supply chain issues. So if costs come down and supply increases, this would help to lift production. In turn, this would increase revenue.
For a retail pick, I’d favour Kingfisher. The DIY store operator naturally feels the brunt of price pressures. Q1 sales were down 5.8% versus the previous year. The benefits of being able to price goods more competitively if supply pressures ease should help reverse this trend.
My concern is that both companies are on the front line of price problems. So if a bull market breaks out but for reasons other than easing supply issues, my two picks could underperform.
Growth stocks from finance
Another area I’d look to is finance. I’d actually be careful about the traditional banks, as a bull market probably coincides with lower interest rates. However, I think there is good value in other parts of the sector.
For example, St. James’s Place. The UK-based wealth manager should be able to take advantage of a stock market surge as more investors will want to get involved. It can earn fees from the advisory side of operations, as well as through transaction fees.
If I’m wanting to spread my risk regarding my specific stock picks, I think it’s a smart idea to pick an investment trust. One of the most reputable is Scottish Mortgage Investment Trust. By putting some of my cash in the hands of professional money managers, I should feel confident in their ability to pick winners.
As I’ve seen in the past, there’s no guarantee that an investment trust can beat the market. The team is made up of humans with subjective viewpoints like myself. So I need to be careful not to over allocate money with the thinking that high returns are a done deal.
On balance, I’m considering investing some of my free cash in all four of these growth stocks.
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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.