For most investors, 2022 hasn't gone as planned. Following a year where the biggest drawdown in the S&P 500 totaled just 5%, the benchmark index has responded in 2022 by plunging into a bear market and delivering its worst first-half return in 52 years.
But that's nothing compared to the growth stock-dependent Nasdaq Composite (^IXIC +0.35%), which has fallen by as much as 38% on a peak-to-trough basis since hitting an all-time last November. The index most responsible for pushing the broader market to new heights is now its biggest drag.
Image source: Getty Images.
While bear markets are known for toying with investors' emotions and forcing rash decision-making, they're also often short lived and an excellent time to put money to work. Eventually, every bear market decline has been fully recouped by a bull market rally.
This bear market looks like a particularly smart time for opportunistic investors to scoop up beaten-down growth stocks. What follows are five magnificent growth stocks you're going to regret not buying on the Nasdaq bear market dip.
Baidu
The first remarkable growth stock you'll be kicking yourself for not adding on the Nasdaq bear market decline is China-based internet content giant Baidu (BIDU +0.18%). Although short-term fears concerning the shake-up of President Xi Jinping's cabinet in China are bound to cause a lot of volatility in China stocks, Baidu's foundation is solid, and its ancillary operating segments are growing rapidly.
This "foundation" I speak of comprises the company's internet search engine. As of June 2022, Baidu accounted for more than 75% of all page views in China, according to data provided by Statista. With a virtually insurmountable market share lead in internet search in the second-largest global economy, it makes total sense that advertisers would pay a premium to get their message in front of consumers.
While internet search acts as the cash cow, the company's cloud-computing and artificial intelligence (AI) operations provide supercharged growth potential over the long run. During a second quarter that saw China's economy challenged by the country's zero-COVID strategy, Baidu managed to generate 31% year-over-year growth in AI Cloud revenue. It also maintained its leading role as an autonomous ride-hailing service provider via Apollo Go.
Patient growth seekers can scoop up shares of Baidu right now for less than 9 times Wall Street's forecast earnings for 2023. That's one heck of a bargain for a company with a long track record of growing by a double-digit percentage.
NYSE: FVRR
Key Data Points
Fiverr International
A second fantastic growth stock that's begging to be bought as the Nasdaq plummets is online-services marketplace Fiverr International (FVRR +1.18%). Despite fears of rising unemployment weighing on near-term sentiment, Fiverr appears well positioned to take advantage of long-winded economic expansions.
Like other online-service platforms, Fiverr offers freelancers a means to sell their services to businesses. However, one key difference for Fiverr's marketplace is how those services are presented. Whereas freelancers on key competitors charge an hourly rate, Fiverr tasks are presented as a package deal. This creates unparalleled pricing transparency, which businesses seem to appreciate. Even as the U.S. economy has weakened during the first half of 2022, spending per buyer on Fiverr's platform has increased.
What's even more important for Fiverr is the company's superior take-rate -- i.e., the percentage of revenue it gets to keep of deals completed on its marketplace. While some of its peers are collecting a take rate in the low-to-mid teens, Fiverr's take rate expanded to 29.8% in the June-ended quarter. Getting to keep a larger percentage of an increasing number of deals completed on its marketplace is a recipe for profit growth.
With a sustained double-digit growth rate and a forward price-to-earnings ratio of just 26, Fiverr looks like an amazing deal.
Image source: Getty Images.
Exelixis
Biotech stock Exelixis (EXEL 2.49%) is a third magnificent growth stock you'll regret not purchasing on the Nasdaq bear market dip. Even though poor investing sentiment has weighed on drug stocks throughout 2022, Exelixis has the competitive edges necessary to deliver for its shareholders.
For years, Cabometyx is what's made Exelixis tick. Cabometyx is approved by the U.S. Food and Drug Administration to treat first- and-second-line renal cell carcinoma, as well as previously treated advanced liver cancer. These indications alone, coupled with strong pricing power and improved cancer-screening diagnostics, have pushed the company's lead drug north of $1 billion in annual sales.
But this could be just the start. Exelixis is examining Cabometyx in dozens of clinical trials. Even if most of these trials fail, the handful of successes that allow for label expansion opportunities could eventually push Cabometyx to more than $2 billion in annual sales.
Furthermore, Exelixis has a large cash pile to fall back on. The company ended the first half of 2022 with approximately $2 billion in cash, cash equivalents, restricted cash equivalents, and investments. That's more than enough to run additional Cabometyx studies, conduct internal research on novel cancer compounds, and collaborate with other drug developers.
Exelixis is a steal at a multiple of 14 times Wall Street's forecast earnings in 2023.
NYSE: IIPR
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Innovative Industrial Properties
A fourth growth stock to pound the table on during the Nasdaq bear market decline is cannabis-focused real estate investment trust (REIT) Innovative Industrial Properties (IIPR +1.86%), or IIP for short. Dig beneath the surface with IIP, and you'll see that Congress's failure to pass marijuana reforms isn't a big deal for this cannabis growth stock.
IIP is like a typical property REIT in the sense that it wants to purchase properties and lease them out for an extended length of time. The only difference is it's purchasing medical marijuana cultivation and processing facilities, in states where medical weed is legal. All told, IIP owns 111 properties covering 8.7 million square feet of rentable space in 19 states.
The best thing about REITs is their operating models tend to be very predictable. Through midyear, Innovative Industrial Properties had collected 99% of its rents on time. Though acquisitions represent its primary source of sales and profit growth, IIP also can pass along inflationary rental increases each year that modestly move the needle.
Something else interesting about Innovative Industrial Properties is that marijuana remaining illegal at the federal level is actually helping the company generate new business. Since access to financial services is spotty for multi-state operators (MSOs), IIP has offered a solution with its sale-leaseback program. With this program, IIP acquires properties for cash and immediately leases these facilities back to the seller. It's a win-win that provides MSOs with much-needed capital and IIP with a long-term tenant.
Innovative Industrial Properties appears cheap at 15 times forward-year earnings while sporting a 7.5% dividend yield.
NASDAQ: JD
Key Data Points
JD.com
The fifth magnificent growth you'll regret not buying on the Nasdaq bear market dip is e-commerce company JD.com (JD +2.08%). Like most China stocks, JD has been punished by fears of increased regulation. However, these fears could be overblown, at least when it comes to JD.
JD is second only to Alibaba (BABA 0.27%) in China's e-commerce space. Considering that Alibaba was hit with a record $2.8 billion fine antitrust fine by China in 2021, investors might be led to believe that JD will find itself under the microscope next.
However, these are very different operating models. Whereas Alibaba is primarily comprised of third-party marketplaces, JD operates more like Amazon. It controls its inventory and logistics, while relying on third-party marketplaces to a very small degree. In my view, this is a big difference, and all the more reason this company will stay off the radar of Chinese regulators.
While online retail accounts for the bulk of JD's revenue, it's the company's ancillary operations that could be even more exciting. This includes the company's burgeoning Logistics segment, as well as majority investment in local on-demand delivery service Dada. These segments offer higher sustained growth potential and juicier margins than online retail sales.
With the potential for ongoing double-digit sales growth, JD looks to be historically inexpensive at 13 times Wall Street's forecast earnings for the upcoming year.
