With the S&P 500 (^GSPC +0.13%) down about 16.2% from its January peak and seemingly still headed lower, most people aren't thinking about buying stocks. Most investors are thinking defensively, and understandably so.
As tough as it is to do so in a bearish environment, however, this is the time to be scooping up long-term growth stocks. Here's a closer look at a couple to consider. They may not only be ready to rally, but could help set the pace for the next leg of the bull market.
1. Microsoft
No, Microsoft (MSFT +0.69%) isn't the centerpiece of the computer technology world it was back in the 1990s and early 2000s. Smartphones, Macs, and open-source software have all chipped away at its clout. It's not out of line, however, to say this software giant is more important to businesses than it's ever been before.
Case(s) in point: Azure. This cloud management platform saw 46% revenue growth during the first quarter alone to lead Microsoft's Intelligent Cloud arm that's doing nearly $80 billion worth of business per year.
NASDAQ: MSFT
Key Data Points
The company also mustered $15.8 billion worth of productivity and process business (software, like Microsoft Office) during the three-month stretch ending in March, up 17% year over year. Even its Windows operating system is still a significant profit center, with its revenue growing 11% last quarter to chip in part of fiscal Q3's $14.5 billion worth of revenue from its More Personal Computing unit. To this end, while alternatives are increasingly offered, GlobalStats estimates that Windows is still the operating system powering 75% of the world's desktops and laptops. Indeed, this company has an offering for most of the major business lines within the technology sector, including video gaming.
There is one big change between the Microsoft of today and the Microsoft of 20 years ago, however -- one investors should appreciate. That change is, a great deal of the company's current revenue is subscription based, meaning its customers are paying a monthly fee for cloud-based access to their software. While there's no longer a sales and profit surge linked to the release of a new version of Office or a new operating system, the reliable revenue stemming from subscriptions is a trade-up rather than a trade-off.
The market hasn't entirely cared about this resiliency of late, allowing Microsoft shares to slide 20% year to date. The company is still expected to grow its revenue by more than 18% this year, though, and 14% in 2023. Steep inflation and even a subsequent economic slowdown just aren't major problems when the world firmly depends on your products.
2. Novo Nordisk
The other growth stock positioned to help renew the bigger-picture bull market is biopharma name Novo Nordisk (NVO 2.62%).
It's a surprising addition to a list of names likely to lead the way higher once the market finally takes a turn for the better. This industry's stocks are already tricky to trade, often driven by one particular drug's development. Drug stocks have also been on the defensive for months. The Nasdaq Biotechnology Index is down nearly 30% since September, for instance, while the S&P Pharmaceuticals Select Industry Index is 25% below last February's peak. Many of the industry's most-loved COVID-19-related names are simply coming off of their pandemic highs, putting bearish pressure on all of their stocks. Throw in the fact that pharmaceuticals are forever subject to regulatory and legislative changes, and what you're left with is an investment prospect that just seems a little too risky.
NYSE: NVO
Key Data Points
Take a step back and look at where the bulk of Novo Nordisk's focus is, though. It's mostly targeting diabetes and obesity, which are (unfortunately) two semi-related ailments that will never be beat. In fact, given much of the world's poor diets, both problems are apt to only grow in the future. The International Diabetes Federation estimates diabetes was diagnosed in 9.3% of the planet's population in 2019, but believes that this figure could ramp up to 10.2% of the world by 2030, and impact 10.9% of us by 2045. And as for obesity, in the U.S. alone the Centers for Disease Control says the number of overweight people in the country grew from 30.5% of the population to 41.9% between 2000 and 2020. Severe obesity grew from 4.7% to 9.2% of our population during that two-decade span.
These trends are one of the reasons Novo Nordisk is expected to see top-line growth of 16% this year, maintaining its average growth pace that's been established for years now.
And it's anything but a stretch to suggest this particular biopharma name could lead the charge once the rest of the sector's stocks are able to turn things around. As the chart above shows, Novo Nordisk is already proving it can shrug off the headwinds working against so many other stocks. Just think what it could do when it and the rest of the industry aren't fighting a headwind.
