It’s a trying time to be an investor. Whether you’ve been putting your money to work on Wall Street for decades or are relatively new to the investing arena, you’ve witnessed the worst first-half return for the broad-based S&P 500 in 52 years!
What’s more, the growth stock-dependent Nasdaq Composite (^IXIC 2.11%), which is largely responsible for leading the market to record highs, has fared even worse. On a peak-to-trough basis, the Nasdaq Composite lost as much as 34% of its value and firmly entrenched itself in a bear market.
While there’s no denying that bear markets can be scary given the velocity and unpredictability of downside moves, history also shows they’re the ideal time for long-term investors to pounce. That’s because every major decline in the U.S. indexes, including the Nasdaq Composite, is eventually cleared away by a bull market rally.
With growth stocks getting taken to the woodshed during this downturn, they’re arguably the best place for patient investors to put their money to work. What follows are five unparalleled growth stocks you’ll regret not buying on the Nasdaq bear market dip.
The first incredible growth stock that’s begging to be bought during the Nasdaq bear market dip is none other than FAANG stock Amazon (AMZN 2.66%). Despite near-term concerns about weaker retail sales and historically high inflation, Amazon’s highest-margin operating segments are firing on all cylinders.
Although most people think of Amazon’s leading online marketplace when they hear the company’s name, online retail sales produce razor-thin margins. What’s been far more important for the company is how its leading marketplace has helped draw in higher-margin revenue. For instance, the company’s marketplace has helped it sign up more than 200 million Prime members worldwide, as of April 2021. Amazon is pacing almost $35 billion in annual run-rate sales from subscription services.
To add, with the company expected to bring in nearly $0.40 of every $1 in U.S. online retail sales in 2022, Amazon’s advertising revenue has soared. Amazon is pacing $35 billion in yearly run-rate sales solely from advertising services.
But the company’s golden ticket is undoubtedly its cloud infrastructure segment, Amazon Web Services (AWS). Cloud spending is still in the early innings of growth, and AWS brought in an estimated 31% of global cloud-service revenue in the second quarter, according to a report by Canalys. Since cloud-service operating margins run circles around online retail margins, AWS has the potential to more than triple Amazon’s operating cash flow by mid-decade.
A second unmatched growth stock investors will kick themselves over if they don’t buy during the Nasdaq bear market decline is online-services marketplace Fiverr International (FVRR 6.66%). Even though a weakening U.S. economy has cast doubt on enterprise spending in the short term, Fiverr is uniquely positioned to benefit over multiple years.
The key to Fiverr’s success is going to be its ability to stand out in an increasingly crowded space. The good news is the company is doing so in two ways. First, Fiverr’s freelancers are presenting their scope of work as a package deal, rather than on an hourly basis. Providing an all-inclusive (i.e., transparent) price is something Fiverr’s customers seem to appreciate, as evidenced by the continued growth in spend per buyer, even in the face of a weaker U.S. economy.
As I recently pointed out, the other difference with Fiverr’s operating model can be seen in its take-rate. The “take-rate” describes the amount of money Fiverr is keeping for deals negotiated on its platform. Whereas most of the company’s peers have a take-rate in the low-to-mid teens, Fiverr’s take-rate has been consistently rising and currently sits just shy of 30%. The simple fact that Fiverr’s take-rate continues to climb as it adds new active buyers demonstrates the pricing power of this already-profitable platform.
The third unparalleled growth stock you’ll regret not scooping up during the Nasdaq bear market dip is edge computing company Fastly (FSLY 7.58%). Although Fastly’s wider-than-expected losses over the past couple of quarters have been an eyesore, the company is well positioned to thrive over the long term as data shifts online and into the cloud.
In simple terms, Fastly is responsible for delivering data from the edge of the cloud to end users as quickly and securely as possible. Since the COVID-19 pandemic took shape, we’ve witnessed the traditional workplace and content consumption habits shift pretty dramatically. With more people working remotely, and businesses moving their data into the cloud at an accelerated pace, companies like Fastly are being relied on now more than ever. That’s great news for a usage-driven operating model like Fastly’s.
While not overlooking the disappointment of Fastly’s larger quarterly losses, investors should also note that the company’s total customer count continues to climb, and its dollar-based net expansion rate (DBNER) has stabilized right around 120%. DBNER is a measure of how much more (or less) existing clients are spending in the current year compared to the previous year. A figure of around 120% suggests that existing customers are spending about 20% more on a year-over-year basis.
A fourth remarkable growth stock you’ll regret not buying as the Nasdaq plunges is U.S. cannabis multistate operator (MSO) Cresco Labs (CRLBF 2.40%). While Wall Street remains disappointed that the U.S. federal government hasn’t legalized marijuana, there are more than enough opportunities at the individual state level for a company like Cresco to profit immensely.
Marijuana stock Cresco Labs looks like an intriguing investment for two reasons. To begin with, it’s highly focused on expanding into limited-license markets. These are markets where regulators are purposely limiting both the aggregate number of dispensary licenses issued, as well as the total number of retail licenses a single business can hold. Targeting limited-license states will allow Cresco Labs a fair chance to build up its brands without getting overtaken by an MSO with deeper pockets.
Furthermore, Cresco is in the midst of a transformative acquisition. Before the end of the year, Cresco’s all-share buyout of MSO Columbia Care is expected to close. When complete, the combined company will have more than 130 operating dispensaries in 18 states.
The second factor that makes Cresco such a smart buy is its industry-leading wholesale operations. Despite wholesale cannabis generating lower margins than retail operations, Cresco holds a coveted cannabis distribution license in California that allows it to place its proprietary pot products into more than 575 dispensaries. In other words, it’s winning on volume, even with lower margins.
The fifth and final unparalleled growth stock you’ll regret not buying on the Nasdaq bear market dip is payment processor Mastercard (MA 1.75%). Though the growing likelihood of a U.S. and/or global recession has Wall Street concerned, Mastercard brings clearly identifiable competitive advantages to the table for its shareholders.
One of the more interesting things about Mastercard is its cyclical ties. While this does expose the company to weaker revenue generation during recessions, it’s important to note that recessions don’t last very long. By comparison, periods of economic expansion are almost always measured in years. Simply sitting back and allowing time to run its course should allow Mastercard’s investors to benefit from steadily higher consumer and enterprise spending.
Something else to consider is that Mastercard purposely avoids lending. Even though it’s a well-recognized brand that would likely have no issue generating interest income and fees as a lender, doing so would also expose the company to loan delinquencies and possible charge-offs during recessions. Not having to set aside capital to cover loan losses is a big reason Mastercard’s profit margin remains firmly above 40%.
Mastercard’s growth runway is enormous as well. Since most of the world’s transactions are still being conducted in cash, Mastercard has plenty of opportunity to expand its infrastructure into underbanked markets or make acquisitions to further its reach.