As investors ready to enter the final week of 2022, there's little question that it'll go down as one of the most difficult years on record for investors. The bond market may log its worst year in history, while the broad-based S&P 500 yielded its worst first half to a year since 1970.
But the real pain has been felt among growth stocks and the growth-driven Nasdaq Composite (^IXIC 2.02%). On a peak-to-trough basis since hitting an all-time high in November 2021, the Nasdaq tumbled as much as 38%. This firmly entrenches the index responsible for lifting the broader market to new heights in a bear market.
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Thankfully, opportunity abounds for the patient when bear markets arise. Even though one can never know in advance where the stock market will bottom, history has shown time and again that bear market losses are eventually cleared away by a bull market. This means it's an incredible time to do some shopping -- especially among beaten-down growth stocks.
What follows are five exceptional growth stocks you'll regret not buying during the Nasdaq bear market dip.
Mastercard
The first sensational growth stock that investors would be smart to add to their portfolios during the Nasdaq bear market decline is payment processor Mastercard (MA 0.07%). Even though Mastercard, like virtually all financial stocks, is cyclical, it has the competitive edges necessary to easily overcome short-term weakness.
To begin with, Mastercard holds the No. 2 spot in credit card network purchase volume market share (almost 23%) in the United States, the top market for consumption in the world. The majority of global transactions are also still being conducted in cash, which gives Mastercard a multidecade runway to organically or acquisitively move its infrastructure into fast-growing but chronically underbanked emerging markets.
In addition to having plenty of opportunity on its plate, Mastercard has completely avoided becoming a lender. Because it strictly focuses on payment processing, Mastercard doesn't have to worry about being liable for credit loan losses when recessions and economic downturns arise. This relatively conservative operating approach is what helps keep the company's profit margin above 40%, and is why it bounces back so much faster than other financial stocks following a recession.
Being cyclical works in its favor, too. Since periods of economic expansion last considerably longer than recessions, Mastercard benefits as consumer and enterprise spending naturally expand over time.
Intuitive Surgical
Another stellar growth stock that you'll be kicking yourself for not buying during the Nasdaq bear market dip is robotic-assisted surgical system developer Intuitive Surgical (ISRG 0.59%). Despite pandemic-related delays in optional procedures, Intuitive Surgical has three huge catalysts in its sails.
First off, on a macro basis, healthcare stocks tend to be highly defensive. This is to say that people can't control when they get sick or what ailment(s) they develop. No matter how well or poorly the U.S. economy performs, there'll always be demand for prescription drugs, devices, and healthcare services.
Second, and more company-specific, Intuitive Surgical tends to hang on to its customers for a long time. As of the end of September, more than 7,300 of its da Vinci systems were installed worldwide. These are costly machines ($0.5 million to $2.5 million) that require a lot of training for surgeons, which means buyers are unlikely to switch to a competing system.
But the third and most important catalyst for Intuitive Surgical is its razor-and-blades-style operating model. Two decades ago, selling its pricey da Vinci system brought in most of its revenue. However, these are complicated systems, which means the margins associated with selling them are only mediocre. As time has passed, selling instruments with each procedure and servicing these systems have become the company's primary sources of revenue. These channels offer much juicier margins than selling da Vinci systems.
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Block
The third exceptional growth stock that's begging to be bought as the Nasdaq plunges into a bear market is budding fintech giant Block (SQ 2.32%). Although weakness in the cryptocurrency market and high inflation are both headwinds for Block, many of its key performance indicators are moving in the right direction.
To begin with, the company's Square ecosystem, which aides businesses with point-of-sale solutions, loans, and data analytics, is still firing on all cylinders and remains Block's core operating segment (for now). Square's ecosystem is seeing $200 billion in gross purchase volume (GPV) traverse its network on an annual run-rate basis, with 40% of that coming from large businesses ($500,000 or more in annualized GPV) in the third quarter. For context, the Square ecosystem had $6.5 billion in total GPV in the entirety of 2012. Since this is a fee-driven operating segment, bigger businesses using its network should translate into higher gross profit.
Perhaps even more exciting is the growth with digital peer-to-peer payment platform Cash App. In less than five years, Cash App has grown its active community from 7 million users to 49 million, all while enjoying gross margin per user that handily outpaces the cost to acquire each new user.
To build on the above, Block purchased buy now, pay later giant Afterpay in January 2022. Afterpay provides a way for Block to tie Cash App into its seller ecosystem to create a closed-loop payment ecosystem. Even during a challenging economic environment, the company's key growth metrics look promising.
Trulieve Cannabis
A fourth top-notch growth stock you'll regret not buying as the Nasdaq drops into a bear market is U.S. marijuana stock Trulieve Cannabis (TCNNF 3.83%). A lack of federal cannabis reform progress on Capitol Hill shouldn't keep opportunistic investors away from a pot stock with a working blueprint.
The most interesting thing about Trulieve has unquestionably been its expansion. Most multistate operators (MSOs) chose to open a couple of dispensaries in as many high-dollar legalized markets as possible. Meanwhile, Trulieve Cannabis focused almost all of its attention on building up its presence in Florida, where medical marijuana is legal, until the midpoint of 2021.
As of the end of November, Trulieve had 180 operating dispensaries, 122 of which were located in the Sunshine State. That's nearly a quarter of the 493 approved dispensaries in the entire state of Florida. Saturating the Sunshine State has allowed the company to effectively build up its brands and awareness without having to spend big on marketing. The result is 19 consecutive quarters (almost five full years) of adjusted profitability.
The next step for Trulieve is to use its successful blueprint in other markets. In October 2021, it completed the acquisition of MSO Harvest Health & Recreation. This deal launched Trulieve into pole position in Arizona, which legalized adult-use weed in November 2020 and commenced retail sales two months later. With a leading presence in two billion-dollar markets and operations growing in a number of other high-dollar states, Trulieve Cannabis looks like a bargain.
Palantir Technologies
The fifth exceptional growth stock you'll regret not buying on the Nasdaq bear market dip is cloud-based data-mining company Palantir Technologies (PLTR 3.73%). While premium-valued stocks have been taken to the woodshed since February of last year, Palantir is now sufficiently de-risked given its competitive advantages.
As I've opined previously, the most important thing Palantir brings to the table for investors is uniqueness. There's not a single company out there that comes anywhere close to providing the gamut of services it does for federal governments and large-scale businesses. Being irreplaceable certainly commands some level of premium on Wall Street.
Palantir's two key platforms are Gotham and Foundry. Gotham helps federal governments plan missions and gather data. Meanwhile, Foundry is used by businesses to break down large blocks of data into something they can understand in order to streamline their operations. Both Gotham and Foundry tend to yield Palantir multiyear contracts.
For the past couple of years, Gotham has been Palantir's core catalyst. However, there's a ceiling to Gotham's growth given that Palantir's artificial intelligence (AI)-driven software can't be used by some global governments (e.g., Palantir does not allow China to use its platform). The company's true golden ticket is Foundry, which is just beginning to scratch the surface of its potential with large-scale companies. In the U.S. alone, commercial customer count more than doubled in the latest quarter to 132 customers. This is the segment that can power Palantir Technologies higher.
