There is a very good chance that when 2022 comes to an end, it will be remembered as one of the most difficult years in history for both professional and everyday investors. The benchmark was seen in the first half of the year S&P 500 the worst result since 1970. The S&P 500 is often viewed as the best barometer of the health of the US stock market.
But things are much worse for technologists Nasdaq Composite (^IXIC 2.87%)which has lost as much as 38% of its value since reaching an all-time intraday high in November 2021. While the three major US indexes are mired in a bear market, the Nasdaq’s plunge really stands out.
However, trouble on Wall Street often leads to opportunity. With the exception of the current pullback in the major indexes, all previous double-digit percentage declines were ultimately erased by a bull market rally. This means that the Nasdaq bear market dip is the perfect opportunity for patient investors to put their money to work.
It’s a very good time to consider buying growth stocks, which outperform value stocks when the US economy weakens. Here are five great growth stocks you’ll regret not buying in the Nasdaq bear market.
It’s the first outstanding growth stock that long-term investors will regret not adding to their portfolio because Nasdaq declines is a payment processor Master card (MA 3.16%). Despite the increased likelihood of a recession in the US, Mastercard is well positioned to deliver for its patient shareholders.
Although it may sound counterintuitive, being cyclical is a great thing for Mastercard. Although recessions are an inevitable part of the economic cycle, the economy spends a disproportionately longer period expanding. Mastercard benefits from growing consumer and enterprise spending in the United States and the global economy over time.
Another thing that makes Mastercard special is the avoidance of loans. Like its main competitor, Visa, Mastercard sticks strictly to the processing of payments. When a recession occurs, lenders typically see borrower delinquencies and charge-off fees rise, forcing them to set aside capital to cover loan losses. Since the company does not lend, there is no need to worry about setting aside capital. This is a big reason Mastercard is bouncing back so quickly from an economic downturn.
Investors would also be wise not to overlook its expansion potential. Globally, cash is still used in a large percentage of total transactions. This has given Mastercard the opportunity for many years to expand its payment infrastructure into currently unbanked regions of the world.
For investors looking for something a little more off-the-radar than one of the world’s top payment processors, consider a small-cap adtech stock PubMatic (PUBM -2.37%). While there’s little doubt that advertising revenue is one of the first things to hit when the winds of recession start to pick up, PubMatic brings clearly defined competitive advantages to the table in the digital advertising space.
The first thing investors should understand about this company is its location. It is a sell-side provider (SSP), meaning it uses its programmatic advertising software to help businesses sell their digital display space to advertisers. There has been a lot of consolidation in the SSP space, leaving businesses with few options other than PubMatic.
Advertising dollars are also shifting from traditional print and billboards to digital platforms, such as mobile, video and over the top channels. The digital ad industry is expected to grow at a compound annual rate of 14% through 2025. PubMatic is pushing industry growth rate forecasts with an organic rate of mostly between 20% and 50%.
But what really stands out about PubMatic is the company’s in-house designed and built cloud infrastructure. It could easily rely on third parties, like some of its peers. But because it chose to build out its own cloud infrastructure, PubMatic can now enjoy higher margins than many of its peers as its revenue grows.
The third great growth stock you’ll regret missing during the plunge in the Nasdaq bear market is an electric vehicle (EV) manufacturer No (NIO -2.91%). While automakers face a mountain of supply chain challenges and contend with historically high inflation, Nio’s positioning and innovation should help drive big gains.
With most developed countries trying to reduce their carbon emissions, the push for consumer and enterprise EVs is a growth opportunity. One of the reasons why Nio is so interesting is because it is based in China, which is the No. 1 auto market. 1 in the world, and its EV industry is still relatively new. This gives a newcomer like Nio a decent shot at getting himself a significant piece of the pie in the coming years.
Despite being founded less than eight years ago, Nio has significant innovations. The company aims to introduce at least one new vehicle each year, and has brought over half a dozen EV models to market. The recently rolled out sedans, the ET7 and ET5, are direct competitors Tesla‘s flagship Model 3 sedan in China. With the top-tier battery pack upgrade, Nio sedans can be driven significantly longer than the Model 3.
And as I mentioned before, Nio’s innovation sets it apart. The battery-as-a-service (BaaS) subscription introduced in August 2020 gives buyers a discount on the purchase price of their EV, as well as the opportunity to charge, exchange and upgrade their batteries in the future. In return, Nio receives high-margin recurring revenue from BaaS, and the continued loyalty of early buyers.
The fourth great growth stock that investors will be kicking under if they don’t buy it in the Nasdaq bear market is marijuana stock Cannabis Trulieve (TCNNF 1.31%). Although cannabis reforms have stalled on Capitol Hill, about three-quarters of all states have legalized weed in some capacity, creating many opportunities for a multi-state operator (MSO) like Trulieve.
One of the unique features of Trulieve is the extended mode. While most MSOs have been opening dispensaries and cultivation facilities in as many legal states as possible, Trulieve focused almost exclusively on Florida’s medical-marijuana-legal market until last year. As of October 3, Trulieve operated 177 dispensaries in eight states, 120 of them in the Sunshine State.
Next to the fact that Florida is expected to be one of the nation’s top dollar weed markets by 2024, soaking up the Sunshine State has a purpose. It allowed Trulieve to keep its marketing costs down, resulting in 18 consecutive quarters of adjusted profitability. Most US MSOs are not yet profitable.
The other aspect of Trulieve Cannabis that makes it interesting is the acquisition of MSO Harvest Health & Recreation, which it completed last year. This agreement placed Trulieve in the No. 1 in the cannabis market in Arizona, where adult use is legal. With a successful operating blueprint in hand, Trulieve has another billion-dollar market it can command.
The fifth great growth stock you’ll regret not buying in the Nasdaq bear market is a cybersecurity company CrowdStrike Holdings (CRWD -0.66%). While recession worries are affecting nearly every premium-valued growth stock, CrowdStrike has company-specific and macro headwinds working in its favor.
On a macro basis, the cyber security industry has evolved into a basic service. No matter how badly the US economy or stock market performs, there is always a need for security solutions to protect against robots and hackers trying to steal sensitive data. Predictable operating cash flow is often a service delivery essential—and Wall Street loves predictability.
What separates CrowdStrike — a provider of end-user cyber security solutions — from its competition is Falcon, the company’s cloud-native platform. Falcon oversees approximately 1 trillion events daily and relies on artificial intelligence to grow more efficient at identifying and responding to potential threats over time. Although CrowdStrike is not the cheapest solution available, it is probably the best solution for businesses since its gross retention rate hovers around 98%.
Additionally, businesses seem to like CrowdStrike’s services. Over the past five years, the percentage of customers who purchased four or more cloud module subscriptions increased from less than 10% to more than 70%. If existing clients are buying additional services that is a possibility for a gross subscription margin of 80% (or higher).