Regardless of whether you've been putting your money to work on Wall Street for decades or began investing within the past couple of years, it's been a trying year.
Since the green flag waved on 2022, the widely followed Dow Jones Industrial Average and broad-based S&P 500 dipped into correction territory with respective declines of more than 10%. It's been an even wilder ride for the growth stock-driven Nasdaq Composite, which endured a peak-to-trough decline of 31% since hitting a record-closing high in November. This squarely places the Nasdaq in a bear market.
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Although bear market drops can be scary and cause investors to question their resolve, they're also, historically, one of the best times to put your money to work. Data shows that most stock market corrections resolve quickly, with bull markets lasting disproportionately longer than bear markets.
If your goal is to build generational wealth, right now is the perfect time to go shopping for innovative growth stocks that can, over time, put you on a path to financial freedom. What follows are five growth stocks fully capable of building generational wealth by 2040.
Nio
The first rapidly growing company with the tools needed to compound an initial investment many times over by 2040 is China-based electric vehicle (EV) manufacturer Nio (NIO -0.48%). Despite facing a number of near-term supply chain headwinds tied to China-based COVID lockdowns and semiconductor chip shortages, Nio has demonstrated that it can lead with its innovation.
Before provincial lockdowns impacting the company's supply chain, Nio had boosted production from fewer than 4,000 EVs in a quarter to north of 25,000 EVs in under two years. What's more, it's producing an array of premium EVs that are designed to take on the industry's "big boys," like Tesla. The recently launched ET7 and upcoming ET5 sedans can, with the top battery upgrade, go 621 miles on a full charge. That handily beats Tesla's flagship sedans, the Model 3 and Model S.
Aside from operating in the largest auto market in the world, Nio should also benefit from its innovative battery-as-a-service (BaaS) subscription, which was unveiled in August 2020. Subscribers to BaaS can charge, swap, and upgrade their batteries, as well as receive a discount on the initial purchase price of their Nio EV. In return, Nio nets a monthly, high-margin subscription fee and, more importantly, locks in the loyalty of its early buyers. The BaaS program could allow Nio to become one of China's premier auto makers by the end of the decade.
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Lovesac
Another growth stock with the potential to create generational wealth in under two decades is furniture stock Lovesac (LOVE -2.59%). Contending with historically high inflation in the short term shouldn't scare long-term investors away from this disruptor.
What makes Lovesac so special is the company's furniture. Whereas most furniture stores buy from the same small group of wholesalers, Lovesac's bread-and-butter is its "sactional" -- a modular sectional couch that can be rearranged dozens of ways to fit any living space. Sactionals are highly customizable, with over 200 cover choices and a handful of upgrade options, including built-in surround-sound speakers and wireless charging stations. Perhaps best of all, the yarn used in the covers of sactionals is made entirely from recycled plastic water bottles, which makes Lovesac's furniture ecofriendly.
The company's other competitive advantage is its omnichannel sales platform. Though it does have 146 retail stores in 39 states, what's impressive about Lovesac is its ability to pivot to online sales, or rely on pop-up showrooms and partnerships to reduce its overhead expenses. Having so many sales channels at its disposal should support superior growth and margins.
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Palantir Technologies
A third fast-paced stock with the innovative capacity to build generational wealth is artificial intelligence-driven data-mining company Palantir Technologies (PLTR 0.56%). Even with short-term concerns about a U.S. recession potentially slowing new contract awards, Palantir appears well-positioned to thrive for a long time to come.
The interesting thing about Palantir is there's no other company that can provide the services it does at scale. Its Gotham platform helps the U.S. government plan missions, and assists other government agencies around the world with data-mining activities. Meanwhile, Palantir's Foundry platform caters to enterprise customers and helps them utilize and better understand their data to streamline their operations.
Historically, Gotham has been Palantir's driving force. Large contract wins have helped the company sustain a 30% (or higher) annual growth rate. However, Gotham is limited in its reach. This is to say that Palantir simply won't work with certain government entities because of national security concerns. By comparison, Foundry is just getting its feet wet in the corporate world, and has an exceptionally long growth runway. Signing up enterprise customers for five-year contracts is Palantir's ticket to delivering transformational wealth to its shareholders.
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PubMatic
Cloud-based programmatic adtech stock PubMatic (PUBM -2.27%) is also capable of producing generational wealth by 2040. Even though ad-based companies are taking it on the chin at the moment with recession fears growing, all signs point to PubMatic as being positioned perfectly to benefit from the digital ad revolution.
PubMatic is what's known as a sell-side provider. This is a fancy way of saying it helps publishing companies sell their digital display space. The company's machine-learning algorithms aim to not only net as much as possible for publishers, but also put relevant content in front of users. Doing so keeps advertisers happy and helps boost the ad-pricing power for publishers over time. Perhaps this is why PubMatic's organic growth rate has more than doubled up the industry's average annual growth rate over the past two years.
Something else to take note of is that PubMatic designed and built its own cloud infrastructure. Not having to rely on a third party comes with its perks. As revenue increases and the company scales, it's liable to generate juicier operating margins than its peers.
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Sea Limited
A fifth and final growth stock that can help patient investors build transformational wealth by 2040 is Singapore-based conglomerate Sea Limited (SE -0.69%). Despite losing money (for now), Sea has three rapidly growing operating segments that could dramatically increase its valuation over the long run.
The only segment generating positive earnings before interest, taxes, depreciation, and amortization (EBITDA) at the moment is Garena, Sea's gaming division. Thanks to mobile game Free Fire, Sea has enjoyed an above-industry-average pay-to-play conversion rate of 10% on its quarterly active users (as of the first quarter of 2022).
There's also SeaMoney, the company's digital financial services segment. Since Sea operates in a number of emerging markets where access to basic banking services is limited, providing digital wallet services could prove quite fruitful to consumers, and the company's bottom line.
The third fast-growing segment is e-commerce platform Shopee. After seeing $10 billion in gross merchandise value (GMV) traverse its online sales platform in all of 2018, Sea's $17.4 billion in GMV in the first quarter alone implies a nearly $70 billion annual GMV run-rate. With online sales still in their infancy throughout Southeastern Asia, Sea's retail sales growth potential is off the charts.
