Nasdaq Bear Market: 2 Unstoppable Growth Stocks to Buy on the Dip

Wall Street is worried about the economy. Supply chain issues and geopolitical conflict have pushed inflation to a 40-year high, but if the Federal Reserve tightens its monetary policy too aggressively -- by raising interest or shrinking it balance sheet too quickly -- it could tip the economy into a recession. Many investors have sold stocks to hedge against that possibility, and the Nasdaq Composite has fallen 25% from its high, putting the index in bear market territory.

That logic makes sense on the surface. Corporate revenues and profits would take a hit during an economic contraction, and those metrics are typically used to value stocks. That being said, the market frequently overreacts to both good and bad news, and many beaten-down growth stocks look like bargains right now. For instance, shares of Amazon (AMZN -1.11%) and PayPal Holdings (PYPL -0.27%) are down 33% and 70%, respectively, but the future looks bright for both businesses.

Here's why.

Image source: Getty Images.

1. Amazon

Wall Street was disappointed with Amazon's first-quarter results, but investors who sold the stock are missing the big picture. Amazon is a powerhouse in two critical industries. Its marketplace averaged 5.2 billion monthly visitors in 2021, three times more than its closest competitor. And Amazon single-handedly powered 41% of e-commerce sales in the U.S. last year, more than the next 14 retailers combined.

Better yet, the company also dominates the cloud computing industry. Last year, Amazon Web Services (AWS) once again ranked as the top cloud vendor, according to research from Gartner. And in the first quarter of 2022, AWS captured 33% market share. That's more than Microsoft and Alphabet combined.

So, why was Wall Street disappointed? High inflation and rising costs were a drag on the bottom line, and Amazon posted its first quarterly loss in several years. But those headwinds are temporary, and Amazon has still grown at an impressive pace over a longer time horizon.

Data source: YCharts. TTM = trailing 12 months. CAGR = compound annual growth rate.

With an already-massive $1.3 trillion market cap, some investors may worry about Amazon's prospects for future growth. But eMarketer's forecast suggests that online retail sales will climb 50% by 2025, and Gartner says cloud services spend will more than double over the same time period. That last figure is particularly noteworthy because cloud computing is far more profitable than retail. In fact, AWS typically achieves an operating margin north of 30%, but the operating margin on Amazon's retail business rarely tops 5%.

To that end, Amazon has plenty of room to grow in both of its core industries, and its profitability should accelerate as AWS becomes a bigger piece of the puzzle. And with shares trading at 2.7 times sales, Amazon is cheaper today than at any other point in the last five years. That's why this growth stock is a screaming buy.

2. PayPal

The PayPal brand is synonymous with digital payments. Over 75% of the top 1,500 businesses offer PayPal at checkout, making it the most accepted digital wallet by a wide margin. For context, Apple Pay ranks second with just 27% acceptance. What's driving that success?

PayPal has distinguished itself through the scale and breadth of its portfolio. The company boasts 429 million active accounts, including 35 million merchants, and it provides a wide range of financial products and services to both consumers and businesses. Of particular note, PayPal has recently taken steps to strengthen its brick-and-mortar presence with the Venmo credit card and QR code payments. And it launched PayPal Zettle in the U.S., a point-of-sale solution that helps merchants manage a business across physical and digital storefronts.

In Q1 2022, PayPal continued to battle headwinds from the loss of eBay, high inflation, and geopolitical conflict, all of which caused top and bottom line growth to decelerate. But those headwinds are temporary, and the company has still delivered solid results over a longer time period.

Data source: YCharts. TTM = trailing 12 months. CAGR = compound annual growth rate.

Despite a tough macroeconomic environment, the future looks bright for PayPal. The company will lap the worst of the eBay impact this quarter, so the loss of eBay's business will no longer be a headwind in the second half of 2022. And inflation will begin to fall as supply chains normalize and interest rates rise.

More importantly, PayPal is executing on a strong growth strategy. The company recently redesigned its digital wallet to include tools for shopping rewards, deal discovery, and crypto trading. Additionally, the Venmo digital wallet is now a checkout option through DoorDash, Revolve, and Booking Holdings, and it's coming to Amazon later this year. Those upgrades are particularly timely, because digital wallet usage among consumers is expected to double between 2021 and 2025, according to Juniper Research.

More broadly, PayPal puts its addressable market at $110 trillion, and unstoppable trends like online shopping and digital payments should be tailwinds for the company. And with shares trading at 4.2 times sales, PayPal is cheaper today than it has been since going public in 2015. That's why this growth stock is a smart buy.