It's been a tumultuous start to the year for Wall Street and the investing community. Since hitting their respective all-time closing highs between mid-November and the first week of January, the iconic Dow Jones Industrial Average, broad-based S&P 500, and technology-driven Nasdaq Composite (^IXIC 0.91%) have plunged by as much as 19%, 24%, and 34%. This officially places the S&P 500 and Nasdaq in a bear market.
While there's little question that bear market declines can be scary given the velocity and unpredictability of moves lower, history is quite clear that these dips are a unique buying opportunity for patient investors.
Image source: Getty Images.
Although it can take time to recoup the downside associated with a bear market, each and every notable drop throughout history, including in the Nasdaq Composite, has eventually been cleared away by a bull market.
The latest broad-based decline has unearthed a bounty of amazing deals among growth stocks. What follows are four magnificent growth stocks you'll regret not buying on this Nasdaq bear market dip.
CrowdStrike Holdings
The first phenomenal growth stock that stands out among its peers is end-user cybersecurity company CrowdStrike Holdings (CRWD 0.29%). Though its price-to-sales multiple is still high relative to other cybersecurity stocks, CrowdStrike's platform and client engagement metrics suggest its premium is well deserved.
NASDAQ: CRWD
Key Data Points
What make CrowdStrike so special is the company's cloud-native Falcon security platform. Being built in the cloud and relying on artificial intelligence (AI) allows Falcon to become more efficient at assessing and responding to threats over time. In a typical day, Falcon oversees roughly 1 trillion events. While CrowdStrike isn't the cheapest option available for end-user security, a gross retention rate above 97.3% for nearly four years running suggests it's the most effective option.
CrowdStrike also has a knack for getting its existing clients to spend more. Despite a compound annual subscriber growth rate of close to 100% over the past five years, the far more impressive growth statistic is the percentage of users with at least four cloud-module subscriptions.
As of the company's most recent quarter, 71% of subscribers had purchased four or more cloud-module subscriptions. A little over five years ago, this figure was in the high single digits. Having existing clients buy additional services is CrowdStrike's golden ticket to having adjusted gross margins eventually reach 80%, or higher.
NYSE: IIPR
Key Data Points
Innovative Industrial Properties
Cannabis-focused real estate investment trust (REIT) Innovative Industrial Properties (IIPR 1.69%) is a second stellar growth stock you'll be kicking yourself over if you don't buy it during the Nasdaq bear market dip.
As of June 15, IIP, as the company is more commonly known, owned 111 cannabis cultivation or processing facilities spanning 8.4 million square feet of rentable space in 19 states. The beauty of buying properties and leasing these assets for long periods is the transparency and operating cash flow predictability that accompanies this operating model.
Although IIP has stopped reporting some of its metrics after announcing new deals, it has previously stated that all of its rentable space is leased, with a weighted-average lease length of more than 16 years. That's a long runway of predictable rental income. Plus, the company is able to pass along annual inflationary rental increases to its tenants.
Innovative Industrial Properties also benefits from a lack of cannabis reform on Capitol Hill. The company's sale-leaseback program purchases properties for cash from businesses with limited access to traditional financing. In return, it leases the property back to the sellers, thereby gaining a long-term tenant.
Image source: Getty Images.
Palantir Technologies
A third magnificent growth stock you'll regret not scooping up on the Nasdaq's bear market decline is data-mining company Palantir Technologies (PLTR +4.58%). Similar to CrowdStrike, Palantir's price-to-sales multiple isn't all that palatable during a bear market. But this is a company with clear competitive advantages that's worthy of a premium valuation.
Palantir is effectively two key platforms wrapped under one umbrella. The Gotham platform provides data collection and data mining, and assists with mission planning for federal governments. Meanwhile, the Foundry platform helps businesses better understand large swaths of data in order to streamline their operations. There isn't a company anywhere near Palantir's scale that does what it does, which is what makes it so unique.
For years, government contracts have predominantly been Palantir's growth driver. Winning multiyear U.S. government contracts has helped propel annual sales growth of around 40%. But there's also a ceiling when it comes to Gotham's addressable market. The AI-based technology Palantir employs simply isn't going to be offered to government entities that are deemed as potential threats to the U.S.
Over the long run, Palantir has just scratched the surface with its greatest growth driver, Foundry. The company's commercial customer count more than tripled when the first quarter came to a close. However, this "tripling" only equates to Palantir ending the quarter with 184 commercial customers. The gamut of opportunity for Foundry is seemingly limitless.
NASDAQ: UPST
Key Data Points
Upstart Holdings
A fourth magnificent growth stock you'll almost certainly regret not buying as the Nasdaq plunges is cloud-based lending platform Upstart Holdings (UPST 3.39%). In spite of clear concerns about rapidly rising interest rates on lending platforms, Upstart has the tools and intangibles to thrive.
The theme of this list is the uniqueness of the product or service offered, and Upstart is no different. This company's lending platform is AI-driven. Instead of relying on a traditional loan-vetting process that can take weeks, Upstart's lending platform, which partners with lending institutions, can offer approvals on the spot. Nearly three-quarters of all loans processed through Upstart are instantly approved and automated. That saves lending institutions money.
But it's not just about saving money. Upstart's AI-lending platform has led to people with lower average credit scores being approved for personal loans. Whereas these folks may not have been approved by traditional means, they're getting a chance with Upstart. Interestingly, the delinquency rate of Upstart's approvals has mirrored the traditional loan-vetting process, despite Upstart's applicants having a lower average credit score.
Even as lending rates rise, Upstart's platform has demonstrated its value to financial institutions. Couple this with Upstart's push into the auto loan origination market, and you have a strong case for sustained double-digit sales and profit growth over the long term.
