Macroeconomic issues like high inflation and rising interest rates have taken center stage on Wall Street this year. Some investors have responded by selling stocks hand over fist, hoping to hedge against the risk of recession. That selling pressure has sent the S&P 500 into a downward tailspin, and the benchmark index is down 20.2% off its high, putting it in bear market territory at the moment.
Downturns can be scary, even for experienced investors. But it's important to make rational decisions. The S&P 500 has fallen sharply many times before, but a bull market has always come along and erased those losses. For that reason -- whether or not there is a recession ahead -- the current downturn actually looks like a good buying opportunity.
Here are three smart growth stock investments you can make right now.
Image source: Getty Images.
1. Arista Networks
High-speed networking specialist Arista Networks (ANET -0.80%) has helped revolutionize the data center industry. Its switching and routing platforms allow clients to deploy fast, programmable networks across public clouds, private data centers, and enterprise campus environments, seamlessly connecting all of their IT infrastructures. Arista also provides software products for network workflow orchestration, telemetry, and artificial intelligence-powered security.
Cisco still clings to its leadership position in the switching industry, though its market share has dropped from 78% to 41% in the past decade. Meanwhile, Arista's share has grown from 4% to 19%. Better yet, Arista is actually the leader in higher-speed categories, including 100G, 200G, and 400G switches, and that's the direction the industry is headed.
That strong market position has translated into solid financial results. Arista's revenue grew 28% to $3.2 billion over the past year, and while rising costs weighed slightly on margins, the company still generated $904 million in free cash flow, up 16% from the prior year.
Looking ahead, growth in cloud computing should be a tailwind for Arista. To keep pace with demand, data centers will need faster networking solutions to support the explosion of connected devices. On that note, management puts its market opportunity at $35 billion by 2025, leaving plenty of room for Arista to grow its business. That's why now looks like a good time to buy this growth stock.
2. Adobe
Software giant Adobe (ADBE -0.27%) breaks its business into two segments. Its digital media segment is a suite of applications for creative design and digital document workflows, many of which have become industry standards. It includes products like Photoshop for image editing, Illustrator for vector graphics, and Premiere Pro for video editing.
Additionally, Adobe provides a complementary suite of digital experience applications for analytics, marketing, and commerce. Those tools turn data into insights, and they help clients engage consumers with targeted marketing material and personalized shopping experiences. It's worth noting that, while Adobe is best known for its creativity applications, research company Gartner recently recognized the company as a leader in digital experience technology.
Also noteworthy, Adobe faces tough competition from Salesforce on the digital experience side of its business, but the breadth of Adobe's digital media portfolio is unrivaled. Better yet, the complementary nature of its creativity-based digital media tools and its data-driven digital experience tools gives Adobe an edge, allowing clients to design and deliver compelling content seamlessly.
Thanks to its lineup of industry-leading products, Adobe has posted impressive financial results like clockwork. Over the past year, revenue climbed 18% to $16.1 billion, and free cash flow rose 18% to $6.8 billion. More importantly, management puts its market opportunity at $205 billion by 2024, leaving plenty of room for growth. That's why this stock is worth buying.
3. Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (VOO -0.23%) is an exchange-traded fund designed to track the S&P 500. In other words, it tracks the performance of 500 of the largest U.S. companies. That means investors benefit from instant diversification -- which makes it safer than individual stocks -- while getting exposure to some of the most iconic companies on the planet. For instance, the five largest holdings are Apple, Microsoft, Alphabet, Amazon, and Tesla.
The fund's expense ratio currently sits at 0.03%, meaning you'll pay just $1.50 in annual fees on a $5,000 portfolio. And while indexes typically offer less upside than individual stocks, the Vanguard S&P 500 ETF is still up 202% over the last decade. And with the S&P 500 down 18% from its high, now looks like a great time to buy this ETF.
