Regardless of how long you've been putting your money to work on Wall Street, the first five months of 2022 have been a challenge. Since hitting their all-time highs in early January, the 126-year-old Dow Jones Industrial Average and widely followed S&P 500 have tumbled 13% and 18%, respectively. Meanwhile, the growth-stock-focused Nasdaq Composite is off 30% from its November record closing high.
While there's no question that big one-day moves lower in the market can be unsettling and tug at investors' emotions, it's far more important to recognize the history behind these moves. Namely, that crashes, corrections, and bear markets are an inevitable part of the investing cycle, and that over time, they've always (eventually) been wiped away by a bull market rally.
Going shopping during steep corrections and bear markets offers investors the opportunity to buy innovative growth stocks that can deliver transformational wealth...with some patience, of course. What follows are five examples of growth stocks with supercharged return potential that can, over many years or decades, put investors on a path to complete financial independence.
The first innovative growth stock that's been clobbered during the downturn is identity-verification solutions company Okta (OKTA 4.01%).
Okta has been punished for its near-term forecast, which calls for more losses, as well as the nosebleed premium to sales that the company's shares were once valued at. But that's all history as of now.
What makes Okta such a no-brainer buy is the evolution of cybersecurity software from optional to a basic necessity. With businesses accelerating the shift of data online and into the cloud in the wake of the pandemic, third-party providers like Okta are being leaned on more than ever to recognize and respond to potential threats. Since Okta operates a cloud-native platform and leans on artificial intelligence (AI), it should be able to thwart attacks more effectively than on-premises solutions. This efficacy is what can sustain a 20% (or higher) annual growth rate, as well as desensitize the company to recessions and economic pullbacks.
Additionally, investors should be excited about the Auth0 acquisition, which closed last year. Aside from gobbling up a competitor, Okta's purchase of Auth0 opens the door for Okta to spread its wings internationally. This overseas growth should come in handy in the latter half of the decade, which is when Europe should be well past the inflationary, supply chain, and geopolitical issues currently haunting the region.
Advertising revenue is often the first thing to get hit when a recession strikes, which is why PubMatic has taken it on the chin recently. But this short-term pain is investors' opportunity to pounce on a truly innovative provider of programmatic ad solutions.
In simple terms, PubMatic is what's known as a sell-side provider. It acts on behalf of publishers to automate and optimize the sale of their digital ad display space. Interestingly, this doesn't mean the highest-priced ad always gets placed in an available space. Rather, PubMatic leans on AI and machine-learning algorithms to place relevant content in front of users. This way, advertisers stay happy and publishers can command more pricing power over time.
PubMatic is at the center of the digital ad revolution. It's no secret that ad dollars are shifting away from print and toward mobile, video, and connected TV. Whereas the digital ad industry is slated to grow by a little more than 10% annually, PubMatic has been more than doubling up the industry's growth rate.
As one final note, keep in mind that the company built its cloud infrastructure. Not having to rely on third parties can allow for scaling efficiencies to push its operating margins higher than its peers.
A third innovative growth stock with transformational wealth ambitions is telemedicine kingpin Teladoc Health (TDOC 2.76%).
The reason shares of Teladoc are down 90% from their pandemic high is simple: The company continues to lose more money than expected, and it grossly overpaid for its acquisition of Livongo Health, a leader in applied health signals. That overpriced acquisition led to a mammoth first-quarter write-down that equates to more than the company's current share price.
While management deserves a kick in the pants following the Livongo deal, there's no denying Teladoc's pole position in today's changing personalized-care landscape.
The beauty of telemedicine is that the entire healthcare treatment chain wins. Although virtual visits can't replace all doctor-patient interactions, it's ultimately more convenient for patients, and can allow physicians to keep closer tabs on chronically ill patients. The latter should lead to improved patient outcomes and less money out of the pockets of health insurers -- and anything that results in lower expenses for insurers is something they're bound to promote. Prior to the pandemic, Teladoc's sales grew by an annual average of 74% over a six-year stretch, which demonstrates that telemedicine isn't a fad.
What's more, the Livongo deal should pay long-term dividends as both companies use their customer bases for cross-selling purposes. Once Teladoc can put a number of acquisition-related expenses in the rearview mirror, Wall Street is likely to recognize the value in this fast-growing platform once again.
Planet 13 Holdings
A fourth innovative growth stock with transformational wealth-building potential over the long run is multi-state cannabis operator Planet 13 Holdings (PLNH.F 1.32%). Yes, a small-cap marijuana stock.
Pot stocks have been a buzzkill for 15 months and counting, largely because the Democrat-led Congress has failed to pass legalization or cannabis banking reforms, as anticipated by Wall Street. However, with about three-quarters of the country legalizing weed in some capacity (19 states of which allow adult recreational consumption and/or sale), plenty of organic opportunity awaits Planet 13, no matter what happens on Capitol Hill.
What makes Planet 13 so special is the company's operating model. Instead of planting its proverbial flag in as many legalized states as possible, Planet 13 has only two operating dispensaries -- but they're massive. The flagship Las Vegas SuperStore spans 112,000 square feet (that's bigger than the average Walmart), while the Orange County SuperStore in Santa Ana, Calif., is 55,000 square feet in size, with 30% devoted to sales space. In other words, the company is focused as much on the nostalgia of the buying experience as it is on making a sale.
Although Planet 13's SuperStore blueprint hasn't been duplicated and should be a long-term moneymaker, the company is also expanding into new markets with a more traditional community-based retail setup. It has already signed two leases in Florida, with these stores expected to contribute to the company's results in 2023.
Auto stocks of all sizes are contending with historic headwinds at the moment. Semiconductor shortages, high inflation, and supply chain disruptions caused by COVID-19 and/or the Russian invasion of Ukraine have caused Nio and many of its peers to significantly scale back production. But the long-term opportunity for EVs is plain as day.
What's intriguing about Nio is that it's operating in the largest auto market in the world (China), and is already going head-to-head with Tesla. For example, the recently introduced ET7 and ET5 sedans offer a top-tier battery upgrade that allows 621 miles on a single charge. That provides substantially better range than either of Tesla's flagship sedans, the Model 3 and Model S.
Aside from new-vehicle innovation, Nio is also being smart with its high-margin service potential. In August 2020, the company initiated its battery-as-a-service subscription, which allows buyers to charge, swap, and upgrade their batteries, as well as net a discount on the purchase price of their Nio EV. In return, Nio collects a monthly subscription fee, and more importantly locks in the brand loyalty of new buyers.
Look for Nio to deliver exceptional sales growth for the next decade, if not well beyond.