There's a very good chance that when 2022 comes to a close, it'll be remembered as one of the most difficult years in history for professional and everyday investors. The first half of the year saw the benchmark S&P 500 produce its worst return since 1970. The S&P 500 is often viewed as the best barometer of U.S. stock market health.
But things have been markedly worse for the tech-driven Nasdaq Composite (^IXIC +1.38%), which has shed as much as 38% of its value since hitting an all-time intraday high in November 2021. Although all three major U.S. indexes are entrenched in a bear market, the Nasdaq's plunge really stands out.
Image source: Getty Images.
However, trouble on Wall Street often begets opportunity. With the exception of the current drawdown in the major indexes, all previous double-digit percentage declines were eventually erased by a bull market rally. This means the Nasdaq bear market plunge is the ideal chance for patient investors to put their money to work.
It's a particularly good time to consider buying growth stocks, which have a history of outperforming value stocks when the U.S. economy weakens. What follows are five terrific growth stocks you'll regret not buying on the Nasdaq bear market dip.
Mastercard
The first outstanding growth stock that long-term investors will regret not adding to their portfolio as the Nasdaq dips is payment processor Mastercard (MA 0.86%). Despite the growing likelihood of a U.S. recession, Mastercard is well positioned to deliver for its patient shareholders.
While it might sound counterintuitive, being cyclical is actually a great thing for Mastercard. Even though recessions are an inevitable part of the economic cycle, the economy spends a disproportionately longer amount of time expanding. Mastercard benefits from consumer and enterprise spending growing in lockstep with the U.S. and global economy over time.
Something else that makes Mastercard special is its lending avoidance. Like its main rival, Visa, Mastercard strictly sticks to processing payments. When recessions occur, lenders typically see loan delinquencies and charge-offs rise, which forces them to set aside capital to cover loan losses. Since the company doesn't lend, it doesn't have to worry about setting aside capital. This is a big reason Mastercard bounces back so quickly from economic downturns.
Investors also would be wise not to overlook its expansion potential. Globally, cash is still used in a large percentage of total transactions. This gives Mastercard a multidecade opportunity to expand its payment infrastructure into currently underbanked regions of the world.
NASDAQ: PUBM
Key Data Points
PubMatic
For investors looking for something a bit more off-the-radar than one of the world's top payment processors, consider small-cap adtech stock PubMatic (PUBM 1.68%). While there's little question that advertising revenue is among the first things to be hit when the winds of recession begin swirling, PubMatic brings clearly defined competitive advantages to the table in the digital ad space.
The first thing investors should appreciate about this company is its positioning. It's a sell-side provider (SSP), which means it uses its programmatic ad software to help businesses sell their digital display space to advertisers. There's been a lot of consolidation in the SSP space, which leaves few choices for businesses other than PubMatic.
Advertising dollars are also shifting away from traditional print and billboards to digital platforms, such as mobile, video, and over-the-top channels. The digital ad industry is projected to grow by a compound annual rate of 14% through 2025. PubMatic has been crushing the industry's growth-rate forecast with an organic rate that has predominantly ranged between 20% and 50%.
But what really stands out about PubMatic is the company's internally designed and built cloud infrastructure. It could easily have relied on third parties, like some of its peers. But because it chose to build out its own cloud infrastructure, PubMatic can now enjoy higher margins than many of its peers as its revenue scales up.
Deliveries of the newly introduced ET7 began in late March. Image source: Nio.
Nio
A third terrific growth stock you'll regret not scooping up during the Nasdaq bear market dip is electric vehicle (EV) manufacturer Nio (NIO +3.35%). Although automakers are facing a mountain of supply chain challenges and contending with historically high inflation, Nio's location and innovation should help drive big gains.
With most developed countries wanting to reduce their carbon emissions, the push to consumer and enterprise EVs represents a no-brainer growth opportunity. One of the reasons Nio is so intriguing is because it's based in China, which is the world's No. 1 auto market, and its EV industry is still relatively nascent. This gives a newcomer like Nio a reasonable shot to grab a significant piece of the pie for itself in the coming years.
Despite being founded less than eight years ago, Nio has impressive innovations. The company has aimed to introduce at least one new vehicle each year, and has brought over a half-dozen EV models to market. Nio's recently rolled-out sedans, the ET7 and ET5, are direct competitors to Tesla's flagship Model 3 sedan in China. With the top-tier battery pack upgrade, Nio's sedans can be driven significantly farther than the Model 3.
And as I've previously pointed out, Nio's innovation sets it apart. The battery-as-a-service (BaaS) subscription that was introduced in August 2020 offers buyers a discount on the purchase price of their EV, as well as the opportunity to charge, swap, and upgrade their batteries in the future. In return, Nio receives high-margin recurring revenue from BaaS, and the continued loyalty of early buyers.
OTC: TCNNF
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Trulieve Cannabis
The fourth phenomenal growth stock that investors will be kicking themselves over if they don't buy it on the Nasdaq bear market plunge is marijuana stock Trulieve Cannabis (TCNNF 3.18%). Even though cannabis reforms have stalled on Capitol Hill, around three-quarters of all states have legalized weed in some capacity, creating plenty of opportunity for a multi-state operator (MSO) like Trulieve.
One of the unique aspects of Trulieve has been its method of expansion. Whereas most MSOs have been opening dispensaries and cultivation facilities in as many legalized states as possible, Trulieve almost exclusively focused on the medical-marijuana-legal Florida market until last year. As of Oct. 3, Trulieve operated 177 dispensaries in eight states, 120 of them in the Sunshine State.
Beside the fact that Florida is projected to be one of the nation's top-dollar weed markets by 2024, saturating the Sunshine State has a purpose. It has allowed Trulieve to keep its marketing costs down, which has resulted in 18 consecutive quarters of adjusted profitability. Most U.S. MSOs aren't yet profitable.
The other aspect of Trulieve Cannabis that makes it interesting is its acquisition of the MSO Harvest Health & Recreation, which it completed last year. This deal put Trulieve in the No. 1 position in the cannabis market in Arizona, where adult use is legal. With a successful operating blueprint in hand, Trulieve has another billion-dollar market it can dominate.
NASDAQ: CRWD
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CrowdStrike Holdings
The fifth terrific growth stock you'll regret not buying on the Nasdaq bear market dip is cybersecurity company CrowdStrike Holdings (CRWD +1.25%). Though recessionary concerns are hitting virtually all premium-valued growth stocks, CrowdStrike has both macro and company-specific tailwinds working in its favor.
On a macro basis, the cybersecurity industry has evolved into a basic-need service. It doesn't matter how poorly the U.S. economy or stock market performs, there's always a need for security solutions to protect against robots and hackers trying to steal sensitive data. Services that are basic necessities often deliver predictable operating cash flow -- and Wall Street loves predictability.
What separates CrowdStrike -- a provider of end-user cybersecurity solutions -- from its competition is Falcon, the company's cloud-native platform. Falcon oversees around 1 trillion events daily and relies on artificial intelligence to grow more efficient at recognizing and responding to potential threats over time. Though CrowdStrike isn't the cheapest solution available, the fact that its gross retention rate is hovering around 98% suggests it's possibly the best solution for businesses.
What's more, businesses really seem to like CrowdStrike's services. Over the past five years, the percentage of customers that purchased four or more cloud-module subscriptions skyrocketed from less than 10% to more than 70%. Having existing clients buy additional services is a recipe for a future subscription gross margin of 80% (or higher).
