Chances are that when 2022 comes to a close, it will be remembered as one of the most difficult years in history for professional and everyday investors. The first half of the year saw the benchmark S&P 500 posted its worst return since 1970. The S&P 500 is often regarded as the best barometer of the health of the US stock market.
But things have clearly been worse for the technology-driven people Nasdaq composite (^IXIC 2.31%)which has lost a whopping 38% of its value since reaching a historic high during the day in November 2021. While all three major US indices are anchored in a bear market, the Nasdaq’s plunge really stands out.
However, problems on Wall Street often create opportunities. With the exception of the current decline in major indices, all previous double-digit percentage declines were eventually offset by a bull market rally. This means that the decline in the Nasdaq bear market is the ideal opportunity for patient investors to put their money to work.
Now is a particularly good time to consider buying growth stocks, which have historically outperformed value stocks when the US economy weakens. What follows are five great growth stocks you’ll regret not buying during the Nasdaq bear market dip.
The first outstanding growth stocks that long-term investors will regret not adding to their portfolios, as the Nasdaq dips is the payment processor MasterCard (MA 2.06%). Despite the increasing likelihood of a US recession, Mastercard is well positioned to outperform its patient shareholders.
While it may sound counter-intuitive, being cyclical is actually a great asset to Mastercard. While recessions are an inevitable part of the economic cycle, the economy spends a disproportionate amount of time expanding. Mastercard benefits from the fact that consumer and corporate spending is growing over time in line with the US and global economies.
Another thing that makes Mastercard special is the avoidance of loans. Like its main rival, VisaMastercard adheres strictly to the processing of payments. When recessions occur, lenders typically see loan delinquencies and write-offs rise, forcing them to set aside capital to cover loan losses. Since the company does not provide loans, it does not have to worry about putting capital aside. This is a major reason why Mastercard is recovering so quickly from economic downturn.
Investors would also be wise not to overlook the expansion potential. Globally, cash is still used in a large percentage of total transactions. This gives Mastercard a multi-decade opportunity to expand its payment infrastructure into the currently under-occupied 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 small-cap adtech stocks PubMatic (PUBM 0.90%). While there’s no doubt that ad revenue is one of the first things hit when the winds of a recession start to blow, PubMatic is bringing clearly defined competitive advantages to the table in the digital ad space.
The first thing investors should appreciate about this company is its positioning. 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 companies other than PubMatic with little choice.
Advertising dollars are also shifting from traditional print and billboards to digital platforms, such as mobile, video and over-the-top channels. The digital advertising industry is projected to grow at a compound annual rate of 14% through 2025. PubMatic has crushed the industry’s growth forecast with an organic rate that was primarily between 20% and 50%.
But what really stands out about PubMatic is the company’s in-house designed and built cloud infrastructure. It could have easily relied on third parties like some of its colleagues. But because it chose to build out its own cloud infrastructure, PubMatic can now benefit from higher margins than many of its peers as revenue grows.
A third great growth stock you’ll regret not picking up during the Nasdaq bear market dip is the electric vehicle (EV) manufacturer. Nioz (NIO 2.19%). While automakers face a mountain of supply chain challenges and historically high inflation, Nio’s location and innovation should help drive big profits.
As most developed countries want to reduce their CO2 emissions, the push towards electric cars represents a good growth opportunity for consumers and businesses. One of the reasons Nio is so intriguing is because it’s located in China, the world’s No. 1 car market, and the EV industry is still relatively young. This gives a newcomer like Nio a reasonable chance to grab a big piece of the pie for himself in the coming years.
Despite being founded less than eight years ago, Nio has impressive innovations. The company has set a goal of introducing at least one new vehicle each year and has launched more than half a dozen EV models. Nio’s recently rolled out sedans, the ET7 and ET5, are direct competitors of TeslaChina’s flagship Model 3 sedan. The top-level battery pack upgrade allows Nio’s sedans to be driven considerable beyond the Model 3.
And as I’ve stated before, Nio’s innovation sets it apart. Launched in August 2020, the battery-as-a-service (BaaS) plan offers buyers a discount on the purchase price of their EV and the ability to charge, swap 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 phenomenal growth stock that investors are kicking themselves for if they don’t buy during the Nasdaq bear market plunge is marijuana. Real Cannabis (TCNNF -0.60%). While cannabis reforms on Capitol Hill have stalled, about three-quarters of all states have legalized weed in some capacity, providing plenty of opportunities for a multi-state operator (MSO) like Trulieve.
One of the unique aspects of Trulieve is the way it expands. While most MSOs have opened dispensaries and growing facilities in as many legalized states as possible, Trulieve focused almost exclusively on the medical-marijuana-legal market in Florida until last year. As of October 3, Trulieve operated 177 dispensaries in eight states, including 120 in the Sunshine State.
Besides the fact that Florida is expected to be one of the most profitable weed markets in the country by 2024, saturating the Sunshine State has a goal. It has enabled Trulieve to keep its marketing costs low, 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 the MSO Harvest Health & Recreation, which was completed last year. This deal placed Trulieve at the No. 1 position in the cannabis market in Arizona, where adult use is legal. With a successful operational blueprint in hand, Trulieve has another multi-billion dollar market it can dominate.
The fifth great growth stock you’ll regret not buying in the Nasdaq bear market dip is cybersecurity firm CrowdStrike Holdings (CRWD 1.59%). While recession concerns are affecting virtually all premium value growth stocks, CrowdStrike has both macro- and firm-specific tailwinds working in its favour.
On a macro basis, the cybersecurity industry has grown into a basic service. No matter how poorly the US economy or stock market is performing, there is always a need for security solutions to protect against robots and hackers trying to steal sensitive data. Services that are basic needs often yield predictable operating cash flow — and Wall Street likes predictability.
What sets CrowdStrike, a provider of end-user cybersecurity solutions, apart from the competition is Falcon, the company’s cloud-native platform. Falcon monitors approximately 1 trillion events daily and relies on artificial intelligence to become more efficient at recognizing and responding to potential threats over time. While CrowdStrik is not the cheapest solution available, the fact that its gross retention rate hovers around 98% suggests that it may be the best solution for businesses.
Plus, businesses seem to really appreciate CrowdStrike’s services. In the past five years, the percentage of customers who have purchased four or more cloud module subscriptions has skyrocketed from less than 10% to more than 70%. Allowing existing customers to purchase additional services is a recipe for a future gross margin of 80% (or higher) on subscriptions.