Since the market bottomed out during the Great Recession nearly 13 years ago, growth stocks have been virtually unstoppable. Historically low lending rates and dovish monetary policy have rolled out the red carpet for fast-paced companies to borrow cheaply in order to hire, acquire, and innovate.
But over the past couple of months, the market's leading sector, technology, has turned into its biggest drag. Whereas tech stocks have singlehandedly pulled the market to new heights, at times, over the past decade, they're now causing something of a "tech wreck."
Yet if there's good news here, it's that every single stock market crash and correction throughout history has represented an opportunity to buy high-quality, innovative businesses at a discount. The following four growth stocks are perfect examples of no-brainer buys amid the tech carnage.
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CrowdStrike Holdings
One of the smartest ways to take advantage of this pervasive tech sell-off is to buy industry leaders that offer clear-cut competitive advantages. One such example is cybersecurity stock CrowdStrike Holdings (CRWD -3.28%).
On a broader basis, cybersecurity has evolved into a basic necessity service. No matter the size of a business or how well the U.S. economy and/or stock market are performing, hackers and robots don't take a day off from trying to steal enterprise and consumer data. With businesses shifting a lot of their data into the cloud in the wake of the pandemic, the responsibility of protecting information is falling onto third-party providers like CrowdStrike more than ever before.
NASDAQ: CRWD
Key Data Points
The not-so-secret sauce that makes CrowdStrike tick is its Falcon security platform. Falcon was built in the cloud and it relies on artificial intelligence to grow more effective at recognizing and responding to potential threats over time. While CrowdStrike's solutions aren't the cheapest, the superior security provided by its platform has made it a popular end-user protection solution. Not surprisingly, its customer retention rate has been hovering around 98% for over two years.
The company's operating results also show that it's having no issue courting new clients. In less than five years, CrowdStrike's subscriber count has catapulted from 450 to 14,687. Perhaps even more impressive, 68% of its existing subscribers have purchased four or more cloud-module subscriptions. That's up from 9% less than five years ago. As existing clients spend more, CrowdStrike's adjusted subscription gross margin creeps ever closer to 80%!
Image source: Getty Images.
Upstart Holdings
Another absolute no-brainer growth stock to buy during this tech wreck is cloud-based lending platform Upstart Holdings (UPST +0.93%). Shares of Upstart are 65% below their 52-week high, as of Feb. 17.
Upstart has been hammered for an assortment of reasons. To begin with, the Federal Reserve is expected to begin raising interest rates in March. When rates rise, multiples for growth stocks typically contract. Also, since Upstart's platform is involved in the lending business, there's concern that higher lending rates could reduce demand at the bank level for loans.
However, neither of these worries can dent Upstart's growth trajectory or long-term strategy. This is a company that's leaning on artificial intelligence (AI) and machine-learning to vet loan applicants quickly and accurately. It's not only saving financial institutions money, but it's democratizing the loan process by helping folks who might not otherwise qualify for a loan.
The number that continually stands out in Upstart's operating results is the high percentage of revenue it collects in the form of bank fees and service revenue. During the fourth quarter, 94% of its revenue came from fees and services. This means Upstart has no direct credit exposure, and will therefore not be hurt by potentially higher loan delinquencies in a rising-rate environment.
There's a huge runway for Upstart to expand, as well. It's been primarily focusing on personal loans since its inception. But with the acquisition of Prodigy Software last year, it now has an AI-enabled auto loan platform. The auto loan origination market dwarfs the personal loan market in size.
The all-electric Nio EC6 crossover hit showrooms in 2020. Image source: Nio.
Nio
Electric vehicle (EV) manufacturer Nio (NIO +1.10%) is a third no-brainer growth stock that's been put on the sale rack as a result of the tech wreck.
Aside from fears of multiple compression in growth stocks, Nio has been weighed down by semiconductor chip shortages, which have affected the entire auto industry. These shortages have halted the company's aggressive production ramp-up at a time when EV market share is up for grabs.
NYSE: NIO
Key Data Points
On the other hand, it's an undeniable truth that most countries will be pushing green-energy solutions for decades to come. Encouraging consumers and businesses to go green by purchasing EVs will be on that agenda. This vehicle replacement cycle is going to last decades and afford auto stocks a period of sustained above-average growth.
What's been impressive about Nio is the company's ramp-up amid these supply chain issues. In November and December, Nio was pacing an annual run-rate of around 130,000 EVs. By year's end, management anticipates the company will have an annual run-rate closer to 600,000 EVs. Increased demand from its existing vehicles, as well as the introduction of three new EVs, will help fuel this expansion.
Furthermore, Nio's management team made the genius move of introducing its battery-as-a-service (BaaS) program in August 2020. The BaaS program allows buyers to charge, swap, and upgrade their batteries. It also reduces the initial purchase price of an EV. In return, buyers pay Nio a monthly fee for this service. Nio has effectively traded some lower-margin, near-term revenue for higher-margin, long-term revenue that'll boost customer loyalty.
Image source: Getty Images.
Palantir Technologies
A fourth no-brainer growth stock to buy in the wake of the massive sell-off in tech stocks is data-mining specialist Palantir Technologies (PLTR +0.79%).
Not to sound like a broken record, but multiple compression has been a big theme behind the recent tech wreck. Less than 13 months ago, Palantir's market cap briefly soared above $80 billion, which is a rich valuation for a company that reported about $1.5 billion in full-year sales in 2021. As of Feb. 17, Palantir had lost about three-quarters of its value from its all-time high.
However, patience should pay off handsomely for Palantir's investors given that no other company does what it does at scale.
Palantir has two operating platforms, each with a very specific target. Gotham services federal agencies, while Foundry is focused on enterprise clients. For the past couple of years, Gotham has been the company's core growth driver. Large, multiyear contracts signed with the U.S. government have sustained the company's sales growth above 40%.
But looking ahead, Foundry is Palantir's golden ticket. Not only can Foundry help businesses streamline their operations by simplifying mountains of data, but it has global appeal. That's not the case with Gotham, which will be limited in its global appeal by security concerns. In other words, Gotham is not something Palantir's management team would allow China's government to use.
Management anticipates Palantir can grow by a minimum of 30% annually through mid-decade. That makes its recent pullback a buying opportunity for long-term investors.
