It's been a tumultuous start to 2022 for new and tenured investors. Both the iconic Dow Jones Industrial Average and widely followed S&P 500 officially dipped into correction territory with drops surpassing 10%. But for the tech-focused Nasdaq Composite (^IXIC +0.42%), the decline was even more pronounced. Between mid-November and mid-March, the famed index shed 22% of its value and briefly entered a bear market.
While big declines in the major market indexes can be scary in the short run, they've historically proven to be the ideal time to put your money to work. That's because every notable dip in the market, which includes the Nasdaq Composite, has eventually been cleared away by a bull market rally.
Below are four beaten-down growth stocks you'll likely regret not buying on the bear market dip in the Nasdaq.
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CrowdStrike Holdings
One of the smartest buys investors can make during the Nasdaq pullback is cybersecurity stock CrowdStrike Holdings (CRWD +1.51%). Shares of the company have fallen 26% since the Nasdaq hit an all-time high in November.
The beauty of cybersecurity stocks is that they've evolved into a basic necessity service. With businesses shifting their data online and into the cloud at an accelerated rate since the pandemic began, the onus of protecting this data from hackers and robots is increasingly falling on third-party providers like CrowdStrike.
NASDAQ: CRWD
Key Data Points
What makes CrowdStrike the cybersecurity company to own is its cloud-native security platform, known as Falcon. Falcon oversees about 1 trillion events daily and relies on artificial intelligence (AI) to keep end users safe. Since it's built in the cloud and leaning on AI, Falcon can identify and respond to end-user threats faster and more effectively than virtually all on-premises security solutions.
Over the past five years, CrowdStrike's subscriber count has catapulted from 450 to 16,325, which represents a compound annual growth rate of 105.1%. Equally important, its existing customers are consistently spending more. In five years, the percentage of clients with four or more cloud-module subscriptions has jumped from less than 10% to 69%. This is why CrowdStrike's adjusted subscription gross margin is nearly 80%.
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PubMatic
Another beaten-down high-growth stock you'll regret not buying on the dip is programmatic ad-tech company PubMatic (PUBM +3.05%). Shares of PubMatic are down more than 30% since November and almost 65% since hitting an all-time high in March 2021.
PubMatic's sustainable growth driver is the steady shift of advertising dollars from print to various digital formats. What PubMatic's cloud-based infrastructure does is oversee the sale of digital advertising space for its clients (i.e., publishers). Interestingly, this doesn't always mean placing the highest-priced ad in a display space. Rather, PubMatic's machine-learning algorithms will aim to place relevant ads in front of users. This keeps advertisers happy and can ultimately boost the long-term ad-pricing power for PubMatic's clients over the long run.
Although global digital ad spend is expected to increase by a little over 10% on an annual basis through 2024, PubMatic has been growing considerably faster. Last year, the company's organic growth rate was 49% and was driven by mobile, video, and connected TV (CTV) programmatic ads. In fact, CTV ad revenue grew more than sixfold in the fourth quarter from the prior-year period.
With PubMatic profitable on a recurring basis and forecast to grow sales by close to 25% in 2022 and 2023, it makes for the perfect stock to buy following a big dip in the Nasdaq.
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PayPal Holdings
A third beaten-down growth stock that's begging to be bought on this decline is fintech giant PayPal Holdings (PYPL +2.16%). PayPal's stock has fallen 62% since July 2021.
As with CrowdStrike and PubMatic, PayPal has a no-brainer growth opportunity on its doorstep. In this instance, I'm talking about digital payments. Even with competition in the digital payments space heating up, PayPal recorded $1.25 trillion in total payment volume (TPV) in 2021 and expects TPV will climb to or beyond $1.5 trillion in 2022.
What's arguably the most impressive aspect of PayPal is the growing number of payments from existing users. In 2020, there were fewer than 41 transactions per active account. Last year, this figure surpassed 45 per active account (over 19 billion transactions spanning 426 million active users). These figures show how quickly the payments landscape is going digital.
PayPal's abundant cash flow has also allowed the company to roll out new products and services. The company began allowing users to buy, hold, and sell cryptocurrencies in 2020, and is tinkering with launching a U.S. stock trading platform. It used its mountain of cash to acquire buy now, pay later solutions company Paidy last September, too.
At just a hair over 20 times Wall Street's forward-year earnings forecast, PayPal is arguably the cheapest it's ever been as a public company.
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Upstart Holdings
The fourth and final beaten-down growth stock you'll regret not buying on the dip is cloud-based lending platform Upstart Holdings (UPST 0.43%). Shares of the company have lost three-quarters of their value since October and are down close to 55% since the Nasdaq Composite hit its all-time high.
Upstart's claim to fame is the company's AI-driven lending platform. The traditional loan-vetting process can take quite a bit of time and be costly for both lending institutions and the party looking for a loan. Upstart's AI-powered platform can give on-the-spot answers (approval or denial) to roughly two-thirds of personal loan applicants. Furthermore, because the platform relies on machine learning, people who might not otherwise qualify for a loan under the traditional vetting process are sometimes approved using Upstart's process. In other words, it's democratizing access to financial services without putting lending institutions at a higher risk of loan delinquencies.
Something else investors should take note of is that 94% of fourth-quarter revenue came from fees and services tied to the lending institutions it caters to. In short, there's no credit exposure or loan delinquency risk when it comes to Upstart. This means a rising-rate environment shouldn't chase investors away from this rapidly growing company.
If you need one more good reason to be excited about Upstart (aside from the company crushing Wall Street's earnings expectations on a regular basis), consider its acquisition of Prodigy Software in 2021. This buyout allows Upstart to push into AI-based auto loans, which is a considerably larger addressable market than personal loans.
