It's been more than a half-century since Wall Street and the investing community have been dealt such a difficult hand. Since hitting their respective all-time closing highs between mid-November and the first week of January, the widely followed Dow Jones Industrial Average, broad-based S&P 500, and growth-stock-dependent Nasdaq Composite (^IXIC -0.92%) have tumbled by as much as 19%, 24%, and 34%, respectively. You'll note that the depth of these declines firmly places the S&P 500 and Nasdaq in a bear market.
Although bear markets can be unnerving given the velocity and unpredictability of their downside moves, they're historically the ideal time to put your money to work. After all, every notable drop in the broader market -- including the Nasdaq Composite -- has eventually been wiped away by a bull market rally.
The current bear market is an especially smart time to buy innovative growth stocks at a discount. What follows are five marvelous growth stocks you'll regret not buying during this bear market dip.
The first stellar growth stock that's begging to be bought as the Nasdaq plunges into a bear market is telehealth services provider Teladoc Health (TDOC -2.57%). Though Teladoc grossly overpaid for applied health-signals company Livongo Health in 2020, leading to a mammoth write-down in the first quarter of 2022, it's also perfectly positioned to take advantage of a shift in the way personalized care is administered in the United States.
While there's no question that Teladoc proved helpful during the pandemic, the winds of change were blowing well before COVID-19 was a global problem. In the six years leading up to the pandemic, Teladoc was averaging annual sales growth of 74%.
The reason Teladoc is such an exciting company is because virtual visits provide benefits to all layers of the healthcare treatment chain. For instance, it's often more convenient for patients to have a discussion with their doctor from the comfort of their own homes.
As for physicians, telemedicine offers the opportunity to keep closer tabs on chronically ill patients. Having regular access to patient data can allow physicians to tailor treatment plans and, ideally, improve patient outcomes. The latter is particularly important, because improved patient outcomes mean less money out of the pockets of health insurers.
Even though Livongo has, thus far, been a blemish, look for the combined company to blossom over time as cross-selling opportunities pick up.
A second marvelous growth stock patient investors can confidently buy with the Nasdaq in a bear market is specialty e-commerce platform Etsy (ETSY -0.91%). While the growing prospect of a U.S. recession has walloped retail stocks like Etsy, the company has more than enough sustainable competitive advantages up its sleeve to navigate this temporary weakness.
As I've previously said, Etsy's online marketplace is its biggest differentiator. Whereas most online retail platforms revolve around volume, Etsy is all about emphasizing personalization. The vast majority of its merchants are small businesses or sole proprietors who make unique or customized products. While there are far bigger online retailers than Etsy, none comes close to the personalization at scale that it can offer.
The company has also done an incredible job of keeping users engaged. Between the end of 2019 and the end of 2021, the number of habitual buyers on the platform more than tripled. A "habitual buyer" is defined as someone who makes six or more separate purchases in a 12-month period that total at least $200 in aggregate. Growth in habitual buyers is what allows Etsy to charge merchants more for its marketplace and analytics services.
A third superb growth stock you won't regret buying as the Nasdaq pushes into a bear market is digital payments powerhouse Block (SQ 0.14%). Although digital payment growth could slow in the very near term if the U.S. enters a recession, Block's multiple long-term growth channels make it a superstar.
For more than a decade, the Square ecosystem has been Block's foundation. This is the segment that provides point-of-sale solutions, analytics, and loans to merchants to help them succeed. Over the past decade, the gross payment volume (GPV) traversing the Square ecosystem has grown from $6.5 billion to an annual run rate of $158 billion, based on $39.5 billion in first-quarter 2022 GPV.
The beauty of the Square ecosystem is that Block's merchants are becoming larger and more successful over time. Since this is predominantly a merchant-fee-driven operating segment, bigger businesses should yield higher gross profits.
But over the long run, digital peer-to-peer payment platform Cash App is Block's biggest growth driver. The number of monthly active Cash App users has catapulted from 7 million to north of 44 million in four years (ended Dec. 31, 2021). And the gross profit per monthly transacting user vastly outweighs acquisition costs for a new customer. Cash App should become Block's cash cow soon enough.
Innovative Industrial Properties
Another outstanding growth stock you'll regret not buying on the Nasdaq bear market dip is cannabis-focused real estate investment trust (REIT) Innovative Industrial Properties (IIPR -1.05%). Even though Congress has failed to pass marijuana reforms at the federal level, Innovative Industrial Properties has grown rapidly.
At the end of June, IIP, as the company is more commonly known, owned 111 properties spanning 8.6 million square feet of rentable space in 19 legalized states. What's great about the cannabis REIT's operating model is that IIP's operating cash flow is transparent and predictable. Earlier this year, the company noted that the average-weighted remaining lease length on its properties was greater than 16 years.
In addition to the stable cash flow derived from its many acquisitions of cultivation and processing facilities, IIP brings modest organic growth to the table. Every year, it passes along inflationary rent hikes to its tenants, and collects a property management fee tied to the base annual rent.
Investors might also be surprised to learn that Congress' inaction on federal weed reform is actually helping Innovative Industrial Properties. Since access to basic banking services can be limited for pot stocks, quite a few have utilized IIP's sale-leaseback program. Under this model, IIP acquires cannabis-focused properties for cash and leases them back to the seller. It's a win for everyone involved, with the seller netting much-needed cash and IIP landing a long-term tenant.
The fifth and final marvelous growth stock you'll regret not buying during the Nasdaq bear market is cybersecurity company CrowdStrike Holdings (CRWD -1.68%). Despite companies with premium valuations getting hit hard in the first half of 2022, CrowdStrike has demonstrated that its premium is well deserved.
To start with, cybersecurity has evolved into a basic necessity for businesses over the past two decades. No matter how poorly the U.S. stock market and/or economy perform, robots and hackers don't take time off from trying to steal enterprise and customer data. This provides a base level of demand for cybersecurity stocks in virtually any economic environment.
What really allows CrowdStrike to stand out is its cloud-native security platform, known as Falcon, which relies on artificial intelligence to become more efficient at screening for and responding to potential threats. In a typical day, CrowdStrike oversees about 1 trillion events for its end users. While it isn't the cheapest end-user security solution, the company's persistent gross retention rate of around 98% suggests it's easily one of the most effective.
But the most telling measure of CrowdStrike's success has been its ability to get existing clients to spend more. In a little over five years, the percentage of clients with four or more cloud-module subscriptions skyrocketed from 9% to 71%. This high-margin, subscription-driven operating model should have CrowdStrike rolling in the dough for a long time to come.