It's truly amazing how quickly things can change on Wall Street.
At this time last year, the general consensus was that President Joe Biden would oversee a bull market that would be off to the races. Lending rates were at or near historic lows, the U.S. economy was bouncing back from COVID-19 lockdowns, and the Federal Reserve seemed intent on maintaining dovish monetary policy. But that's all changed.
In February, the U.S. inflation rate hit a 40-year high of 7.9% and the nation's central bank has forecast up to seven rate hikes in 2022. Were this not enough, the conflict in Ukraine with Russia is adding to supply chain constraints. Perhaps it's no surprise that the growth-centric Nasdaq Composite entered bear market territory earlier this month.
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However, a Biden bear market doesn't have to be a bad thing for investors. History has shown that it's a really smart move to buy great companies at a discount during big declines given the penchant for bull markets to erase bear-market drops over time.
With that being said, the following trio of high-growth stocks are begging to be bought, even in a Biden bear market.
Alphabet
Although small-cap stocks are often the go-to if you're looking for supercharged growth, megacap stock Alphabet (GOOGL 10.22%) (GOOG 9.96%) is a company growth-seeking investors can confidently buy during a Biden bear market. After all, Alphabet did grow its full-year sales by a scorching 41% last year to north of $257 billion.
Most folks are probably familiar with Alphabet subsidiary Google, which is the world's leading internet search engine. Based on data from GlobalStats, Google has accounted for between 91% and 93% of worldwide internet search share over the past two years. Having a near-monopoly status on global internet search means advertisers are often willing to pay a premium to get their message in front of users. Perhaps unsurprisingly, Google's ad revenue has pretty consistently grown by a double-digit percentage for more than a decade.
What investors might not realize is there's more to like about Alphabet than just its leading search engine. For instance, Alphabet also owns streaming content platform YouTube, which has become one of the most-visited social sites on the planet. During the fourth quarter, YouTube generated more than $8.6 billion from ad revenue, putting in on pace for $34.5 billion in annual run-rate ad sales.
There's also cloud infrastructure service Google Cloud, which has been growing by 45% to 50% on a year-over-year basis. Cloud slots in as the No. 3 in terms of global cloud infrastructure spending, and based on its fourth-quarter sales is now generating $22 billion in annual run-rate revenue. Since cloud infrastructure margins should be considerably higher than advertising margins over the long, the expectation is for Google Cloud to help double Alphabet's operating cash flow over the next four years.
Among the FAANG stocks, Alphabet remains an inexpensive and smart way to play the pullback in the broader market.
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Trulieve Cannabis
Another high-growth stock that's begging to be bought during a Biden bear market is pot company Trulieve Cannabis (TCNNF 3.83%).
One of the more interesting things we learned during the initial stages of the COVID-19 pandemic is that cannabis is treated as a non-discretionary item by consumers. This is to say that consumers are purchasing dried flower and oil products no matter how well or poorly the U.S. economy and/or stock market are performing. That's great news for an industry-leading multi-state operator (MSO) like Trulieve Cannabis.
What makes this marijuana stock so different from its peers is how it's expanded. Whereas most MSOs sought to open a few dispensaries in as many high-dollar legalized states as possible, Trulieve focused almost all of its attention on saturating the medical marijuana-legal Florida market. This is a company with approximately 160 operating dispensaries nationwide, over 110 of which are located in the Sunshine State.
By flooding the Florida market with its retail locations, Trulieve has been able to gobble up approximately half the state's dried flower and oils market share. More importantly, it's been able to keep its marketing expenses pretty low. As a result, Trulieve has been profitable on a recurring basis for more than three years and is the most nominally profitable pot stock.
Trulieve's next stepping stone is the acquisition of MSO Harvest Health & Recreation, which closed in the fourth quarter of 2021. This deal gave Trulieve the pole position in Arizona, which was Harvest Health's home market. The Grand Canyon State voted to legalize adult-use weed in November 2020 and commenced sales two months later.
Trulieve is highly profitable and not at risk of a sales slump during a bear market, which makes it the ideal stock for growth investors to buy.
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Upstart Holdings
A third and final high-growth stock that's begging to be bought in a Biden bear market is cloud-based lending platform Upstart Holdings (UPST 2.76%).
Unlike Alphabet and Trulieve, which have time-tested operating models, Upstart is a bit more of an unknown. Since most financial stocks are cyclical, they tend to perform poorly during bear markets. However, things could be different for Upstart for a variety of reasons.
To begin with, Upstart's lending platform provides it with a clear-cut competitive edge. The company's cloud-based platform leans on artificial intelligence (AI) and machine-learning to help financial institutions quickly and cost-effectively vet loan applications. Approximately two-thirds of the loan applicants vetted by Upstart receive an immediate answer. Not only does this save financial institutions money, but it's helped democratize the lending process by opening doors for applicants who might have been rejected by a more traditional vetting process (i.e., those with less-than-stellar/limited credit history).
Something else to consider is that 94% of Upstart's revenue in the fourth quarter was derived from fees and services. Put another way, the company doesn't have any credit exposure. Although the probability of a recession in the U.S. is rising, Upstart won't have any direct exposure to rising loan delinquencies.
Additionally, this is a company that's just scratching the surface with its AI lending platform. The acquisition of Prodigy Software in 2021 allows it to infiltrate the auto loan origination market, which is more than seven times the size of the personal loan market it's been focusing on for years.
Buying shares of Upstart would be a smart way for growth investors to position themselves in a Biden bear market.
