Unless you were a short-seller or had a sizable percentage of your investment portfolio tied up in energy stocks last year, there’s a good chance you fell victim to the worst returns in the major U.S. stock indexes since 2008.
Although all three major indexes entered a bear market last year, it was the Nasdaq Composite (^IXIC), with its focus on growth stocks, that really took it on the chin. The Nasdaq shed 33% of its value in 2022 and lost as much as 38% on a peak-to-trough basis following its November 2021 high.
While bear markets are known to test the resolve of investors, they’re also historically a smart time to put your money to work. Since every bear market throughout history has eventually been tossed aside by a bull market, buying high-quality businesses at a discount can make a lot of sense.
What follows are five astonishing growth stocks ripe for the picking that you’ll regret not buying during the Nasdaq bear market dip.
The first surefire growth stock you’ll be kicking yourself over if you don’t buy it during the Nasdaq bear market is e-commerce behemoth Amazon (AMZN). Although its world-leading online marketplace is likely to face challenges as interest rates rise and the economy weakens, the important thing is that its considerably higher-margin segments are growing at a torrid pace.
Last year, eMarketer predicted Amazon would account for just shy of 40% of all U.S. online retail sales. While its e-commerce dominance is unmatched, retail sales produce razor-thin operating margins.
What’s been far more meaningful for Amazon has been the more than 200 million Prime members it has signed up worldwide as of April 2021. Subscription revenue is nearing $36 billion in annual run-rate sales and leads to far juicier margins than online retail sales.
Even more important is the growth of its cloud infrastructure service segment, Amazon Web Services (AWS). We’re still in the relatively early innings of cloud-service growth, and AWS has amassed nearly a third of the world’s market share. Despite accounting for roughly a sixth of Amazon’s net sales, AWS generates most of the company’s operating income.
Throughout the 2010s, investors willingly paid a median of 30 times year-end cash flow to own shares of Amazon. You can buy shares right now for less than 10 times Wall Street’s forecast cash flow for the company in 2024.
The second no-brainer growth stock you’ll regret not buying during Nasdaq’s bear market is cybersecurity stock Okta (OKTA). Despite higher costs associated with its Auth0 acquisition weighing on its bottom line, Okta has a number of sustained catalysts that make its sizable pullback an intriguing buying opportunity for patient investors.
To begin with, cybersecurity has steadily evolved into a basic-necessity industry over the past two decades. Before the pandemic, businesses were shifting their data online and into the cloud. In the pandemic’s wake, the pace of this shift has accelerated. Since hackers don’t take time off from trying to steal sensitive information, cybersecurity is necessary in any economy.
On a more company-specific basis, Okta’s cloud-native identity verification solutions stand out for their use of artificial intelligence (AI) and machine learning. Leaning on AI allows Okta’s platform to become more efficient over time at identifying and responding to potential threats.
What we’ve seen from Okta’s operating results is that businesses are willing to pay up for this premier protection, with the company’s subscription backlog widening 21% in the third quarter from the prior-year period to $2.85 billion by the end of October.
Furthermore, Okta should benefit from smaller losses in fiscal 2024 (which comprises most of calendar year 2023) as Auth0 integration issues are put into the rearview mirror and the company begins stretching its legs into overseas markets.
A third astonishing growth stock you’ll regret not scooping up during the Nasdaq swoon is China-based online retailer JD.com (JD). While China’s COVID-19 mitigation strategy has weighed heavily on its economy for the past three years, a recent change should open the door and allow the fast-growing JD.com to shine.
This “recent change” I refer to is China abandoning its controversial zero-COVID strategy. Although the next couple of months could be challenging as its citizens build up vaccine-based or natural immunity to COVID, the move will ultimately allow economic activity to thrive once more.
JD.com is China’s No. 2 online retailer, behind only Alibaba. But whereas Alibaba’s platform predominantly relies on third-party marketplace services, JD.com is set up as a direct-to-consumer model, similar to Amazon. Because JD.com is in control of its inventory and logistics, and relies only minimally on third-party marketplace services, it’s able to better manage its expenses and pull levers to increase its operating cash flow.
And like Amazon, JD has burgeoning ancillary segments that offer higher margins than traditional e-commerce. The company’s logistics division grew 39% in the September-ended quarter from the comparable period in 2021 — and this doesn’t even take into account the revenue from local on-demand delivery service Dada. Between JD’s traditional online retail segment and its potentially higher-margin logistics and JD Health operations, sustained double-digit sales and earnings growth is a real possibility.
The fourth supercharged growth stock you’ll regret not buying during the Nasdaq dip is U.S. marijuana stock Trulieve Cannabis (TCNNF). Even though cannabis legalization and banking reform efforts have fallen flat on Capitol Hill for years, state-level legalizations have proved to be more than enough to allow Trulieve to push into the profit column.
One of the more interesting aspects of this company has been its method of expansion. While most multi-state operators entered anywhere from one dozen to two dozen legalized states, Trulieve Cannabis spent most of its effort saturating medical-marijuana-legal Florida. As of the end of November, 122 of its 180 dispensaries were in the Sunshine State. For context, these 122 dispensaries make up just shy of a quarter of all marijuana stores in the state.
Why Florida? To start with, the state is on track to be the third-largest cannabis market by sales in 2024. There’s also a good likelihood that recreational cannabis will be on the ballot in Florida next year.
But the big perk of holding one of 22 Florida marijuana retail licenses is that holders can open as many dispensaries as they would like. Saturating the state has kept its marketing costs down while helping the company post 19 consecutive quarters of adjusted profits.
Investors should see the company’s acquisition of Harvest Health & Recreation begin to pay dividends, too. Harvest Health was the leading cannabis retailer in Arizona, which began allowing the sale of adult-use weed two years ago. And this buyout gave Trulieve a foundation to build up its presence in the mid-Atlantic region of the U.S.
The final astonishing growth stock you’ll be sorry for passing up during the Nasdaq bear market is social media platform Pinterest (PINS). Despite advertisers’ paring their budgets amid near-term economic uncertainty, Pinterest has demonstrated that its clear-cut competitive advantages can still send its shares higher.
Skeptics have placed a lot of emphasis on the company’s flattening/shrinking number of monthly active users (MAUs) since March 2021. Putting aside the fact that its long-term MAU trend is still pointing up, the real story should be that Pinterest has had no trouble monetizing its 445 million MAUs. Even in a challenging advertising environment, global average revenue per user climbed by 11% in the third quarter. This is clear evidence that merchants are willing to pay up to get their message in front of Pinterest’s army of potential shoppers.
Another reason Pinterest makes for a surefire buy is its operating model. Instead of being forced to rely on data-tracking tools that consumers can now opt out of, Pinterest’s site is based on the premise that users will freely and willingly share what interests them. The entire concept of the pinned board allows Pinterest to serve up data that merchants can use to target users.
Lastly, don’t overlook Pinterest’s cash position. As of the end of September, it had approximately $2.67 billion in cash, cash equivalents, and marketable securities. This is more than enough capital to continue innovating while weathering a challenging economy.