Stock markets may be falling left and right, but not every investor is upset about it. In fact, the first quarter of 2022 was the busiest buying season Berkshire Hathaway investors have seen from Warren Buffett and Charlie Munger since 2008.
You probably can't buy more than $50 billion worth of stocks in a single quarter like the good folks at Berkshire Hathaway just did. This limitation doesn't mean you can't take advantage of bargain prices presented by the current bear market.
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Nvidia (NVDA 3.71%), Upstart (UPST -1.25%), and Spotify (SPOT 2.77%) aren't major Berkshire Hathaway holdings yet, but they have the sort of strong competitive advantages that Buffett famously appreciates. Here's why these growth stocks look like screaming buys at recent prices.
Nvidia
Shares of this U.S. chipmaker have been trading around 41% below the peak they reached last fall. Now you can buy the stock for the relatively low price of 35 times forward earnings expectations. That would be a prohibitively high valuation for most businesses, but Nvidia's still growing by leaps and bounds.
During its fiscal fourth quarter, ended Jan. 30, 2022, revenue soared 53% year over year. Despite an outstanding performance, the stock has been under pressure because investors are worried about canceled orders for graphics processing units (GPUs) that happened in late 2021. Also, a sudden loss of demand from two countries with large information technology sectors, Russia and Ukraine could drag down Nvidia's performance in the near term.
Now's a great time for long-term investors to buy Nvidia because the temporary setbacks affecting the company today aren't going to stop it from dominating the market for GPUs for the foreseeable future. Nvidia GPUs are used in nearly every new artificial intelligence (AI) application today because, for the past 16 years, developers have become accustomed to using Nvidia's proprietary CUDA platform.
In a nutshell, CUDA lets developers build applications that can make the most of a GPU's parallel processing architecture. This means building a better GPU at a competitive price point can't help Nvidia's competitors because there won't be any developers willing to work with them.
Upstart
Shares of this AI-powered fintech stock shot up after its stock market debut in late 2020, but the stock has fallen around 79% since it peaked last fall. The stock has been tumbling in recent weeks in response to weakening delinquency trends on loans originated in 2021 and general fears related to a rising interest rate environment.
Rising interest rates aren't going to be a huge problem for Upstart because it isn't a lender. Instead, banks, credit unions, and car dealerships hire Upstart to evaluate individual credit risk in return for a fee. This is a lucrative position to be in because lenders have long suspected the three-digit FICO score they've been relying on for decades ignores a lot of potential borrowers who slip through the cracks.
Since its inception in 2012, Upstart has mostly focused on the limited market for personal loans but this year it's expanding into the much larger market for auto loans. So far, the expansion into auto loans is proceeding better than expected. In March, Volkswagen selected Upstart's Auto Retail product as a preferred digital provider for the dealerships it's currently modernizing.
At recent prices, you can buy Upstart shares for around 36 times forward earnings expectations. Like Nvidia, this multiple isn't as high as it seems because the business is expanding at a hair-raising pace. Fourth-quarter revenue soared 252% year over year to $305 million, and that was before the company expanded into auto loans. With a large available market to grow into, this stock could have heaps of upside for patient investors.
Spotify
Shares of this music streamer have fallen around two-thirds from the peak they reached last November. Now you can buy this stock for about 1.7 times trailing sales. That's awfully low for a profitable company that's successfully separating itself from the competition.
Spotify was the first music streamer, and is still the only one, to use its enormous music listening audience to attract podcasters who distribute their product for free. That's helpful in offsetting fees that go toward musicians and other creators.
Podcasting may have started with Apple, but Spotify is eating iPod inventors' lunch with both hands. Sliding the latest episode of a podcast into their music streaming queue has been a favorite feature among Spotify users for years, but you still can't even play a podcast with the Apple music app.
Spotify also got the jump on licensing exclusive podcast content. In 2019, Spotify acquired Gimlet Media, a leading producer of high-profile podcasts, and Anchor, a podcaster toolset that is now responsible for launching a majority of new podcasts on the platform.
Other podcast platforms still require listeners to remember Web addresses and promo codes to monetize their content. The Spotify platform is already employing affiliate links that send podcast listeners directly to an advertiser's landing page. With a big lead on the competition, Spotify could generate growing profits in this space for many years to come.
