This has been one of the most all-around difficult years for investors in quite some time. The broad-based S&P 500 produced its worst first-half return in more than a half century, while the bond market has delivered its worst year on record.
But this still isn't as disappointing as the trailing one-year returns for the growth-centric Nasdaq Composite (^IXIC 1.11%). Since hitting an all-time high roughly one year ago, the Nasdaq has plunged as much as 38%. This entrenches the index that was largely responsible for pushing the broader market to new heights in a bear market.
Image source: Getty Images.
Although bear markets can, at times, be scary for new and tenured investors alike, the rewards of patience can easily outweigh those fears. Over time, every major stock market decline throughout history has eventually been washed away by a bull market. In other words, big declines are the ideal opportunity to do some shopping.
It's an especially good time to go bargain hunting for innovative growth stocks that have been beaten down. What follows are five mind-blowing growth stocks you'll regret not buying during the Nasdaq bear market dip.
CrowdStrike Holdings
The first stunning growth stock begging to be bought during the Nasdaq bear market decline is end-user cybersecurity specialist CrowdStrike Holdings (CRWD 2.30%). Despite growing concern among software-as-a-service (SaaS) providers that near-term demand could weaken, CrowdStrike has tricks up its sleeve to thrive in a challenging economic environment.
First off, it's important to recognize that cybersecurity is a basic necessity service. Just because the U.S. economy hits a rough patch doesn't mean robots and hackers take time off from trying to steal enterprise and customer data. As businesses shift more data online and into the cloud, third-party providers like CrowdStrike will see their role in data protection grow.
What makes CrowdStrike so special is the company's cloud-native Falcon platform, which is overseeing around 1 trillion daily events. Falcon relies on artificial intelligence (AI) and machine learning, which is to say that its software grows smarter and more efficient at recognizing and responding to potential threats over time. Even though CrowdStrike's SaaS solutions aren't the cheapest, its gross retention rate of more than 98% suggests clients like the product(s).
But the real lure with CrowdStrike is its ability to encourage existing customers to buy additional services. A little over five years ago, fewer than 10% of its customers had purchased four or more cloud-module subscriptions. As of July 31, 2022, 59% of its more than 19,600 customers had purchased at least five cloud-module subscriptions. These add-on purchases are a recipe for supercharged subscription gross margin.
Lovesac
A second mind-blowing growth stock you'll be kicking yourself for not buying during the Nasdaq bear market dip is furniture stock Lovesac (LOVE 5.38%). Normally, a "furniture stock" would be the opposite of mind-blowing, but this company is attempting to turn a stodgy industry on its head.
The most obvious differentiator for Lovesac is its furniture. Approximately 88% of its net sales derive from selling sactionals, which are modular couches that can be rearranged multiple ways to fit most living spaces. Sactionals have over 200 cover options, with the yarn used in these covers made entirely from recycled plastic water bottles. It's everything the company's core millennial customer could want in furniture: functionality, optionality, and eco-friendliness.
Something else to note about Lovesac is it typically targets a more affluent clientele with its products. Even with inflation soaring to a four-decade high in June, Lovesac is less likely to be adversely impacted by inflation than traditional furniture retailers.
However, the best aspect of Lovesac might be its omnichannel sales platform. It was able to successfully pivot nearly half its sales online during the pandemic, and can lean on popup showrooms and partnerships to boost sales. Not being tied solely to a brick-and-mortar model reduces the company's overhead expenses and boosts profitability.
Image source: Getty Images.
Palantir Technologies
The third jaw-dropping growth stock you'll regret not buying as the Nasdaq plummets is data-mining company Palantir Technologies (PLTR 2.44%). Even though Palantir left Wall Street wanting more following its third-quarter earnings release, the competitive advantages this company offers makes it a rock-solid buy for patient investors.
One of the reasons Palantir makes for such a smart buy is that its operating model is unique. Effectively all of its revenue comes from its Gotham and Foundry platforms. Gotham is the company's segment that helps governments gather data and oversee missions. Meanwhile, Foundry works with businesses to help them manage large quantities of data in order to streamline their operations. What Palantir provides isn't replicated by any other business.
For the moment, Gotham is Palantir's superstar. Large, multiyear government-contract wins (mostly in the U.S.) have spurred sustained double-digit revenue growth. In fact, government revenue on a trailing-12-month (TTM) basis surpassed $1 billion for the first time in company history in the latest quarter.
However, the ceiling for Gotham is going to be somewhat limited. For example, it's not software that can be used by the likes of China due to security concerns. Over the long run, Foundry is Palantir's relatively untapped cash cow. Commercial revenue jumped 53% during a challenging third quarter, with the TTM commercial-customer count effectively doubling to 228 from 115. This is the segment that can make long-term Palantir shareholders a lot richer.
A fourth phenomenal growth stock you'll regret not scooping up during the Nasdaq bear market decline is social media company Pinterest (PINS 1.02%). Though ad-driven stocks have been taken to the woodshed in 2022 on growing recession concerns, Pinterest has demonstrated that it has the tools to outpace its competition.
The first thing to note about Pinterest is that its monthly active user (MAU) count is moving in the right direction once again. Although MAUs vacillated wildly during initial pandemic lockdowns and following the COVID-19 vaccination campaign, a wide-lens look over the past five years shows relatively steady user growth to the current total of 445 million global MAUs.
Even more important, Pinterest has had no issue monetizing its user base, regardless of whether its total user count was climbing or falling. Even amid a very difficult advertising environment, global average revenue per user (ARPU) rose 11% during the September-ended quarter, with international markets (minus Europe) delivering the juiciest ARPU growth. Pinterest has just scratched the surface with international ad revenue, and it's pretty evident that advertisers are willing to pay top dollar to reach the company's 445 million MAUs.
As a shareholder, I really like Pinterest's operating model, which is built to support an e-commerce marketplace. Whereas most social media sites rely on likes or other data-tracking solutions to get a bead on what users like, Pinterest's MAUs willingly share their interests via pinned boards. This makes it easy for merchants to target their message and should help Pinterest become a force in e-commerce at some point this decade.
Nio
The fifth and final mind-blowing growth stock you'll regret not buying on the Nasdaq bear market dip is China-based electric vehicle (EV) manufacturer Nio (NIO 5.26%). Despite supply chain disruptions caused by China's zero-COVID strategy and historically high inflation, Nio's innovation has shone through like a bright light.
In October, Nio delivered just over 10,000 EVs, which marked the fifth consecutive month it surpassed the 10,000-vehicle delivery level. Just three years ago, Nio was delivering closer to 2,500 EVs per quarter. Once supply chain disruptions abate, Nio should be able to make a run at 50,000 EVs in monthly production within about a year.
But as I've noted previously, it's the company's innovation that really stands out. Management thought out of the box in August 2020 when it introduced its battery-as-a-service (BaaS) subscription. On one hand, BaaS lowers the initial purchase price of an EV and provides owners with the ability to charge, swap, and upgrade their batteries in the future. On the other hand, it generates high-margin recurring revenue for Nio and importantly keeps early buyers loyal to the brand.
Nio has also been bringing at least one new EV to market each year. The company is known for its premium and mid-tier price points for SUVs and sedans, and has produced EVs that offer superior range to industry leaders (with battery pack upgrades). Nio has the potential to drive long-term investors to sizable gains.
