A lot has changed since the dot-com bubble of the late 1990s popped in spectacular fashion. For starters, we're all connected to the internet 24/7 through devices that fit in our pockets.
One thing that hasn't changed over the past two decades, though, is investor psychology. As soon as the economy hits a rough patch, the innovative growth stocks that people flocked to suddenly seem toxic to the average investor.
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Despite trying to rally several times, the Nasdaq Composite index closed out the fourth quarter of last year 1% lower than it began. That marks four straight quarters of losses for the growth-stock-laden index, which is something that hasn't happened since the dot-com crash.
Constant losses are scary, but it's important to remember that every bear market in history has been wiped away by subsequent recoveries. We don't know when the next recovery will begin, but here are three stocks poised to soar when it does.
Amazon
Shares of Amazon (AMZN -2.56%) fell by nearly half in 2022 and it's not hard to understand why. The e-commerce giant spiked in 2021 because the company was able to meet soaring demand during the lockdown period of the pandemic. Unfortunately, the investments that lifted Amazon quickly became an albatross around its neck once e-commerce activity returned to normal.
Investors want to buy shares of this beaten-down stock right now because profits at Amazon are more than likely on their way back. That's because the company has a lot of levers to pull to get its bottom line moving in the right direction again. First of all, Amazon Web Services (AWS) has a leading share of the cloud services market, and it probably generated around $23 billion in operating income this year.
While AWS contributes an even larger sum to Amazon's bottom line in 2023, the company's operations that don't generate profit will become much smaller. Amazon's worldwide digital group, which includes Prime Video and the Alexa voice-operated assistant, burns through billions even though neither of these endeavors generates revenue directly. A much smaller headcount in this division should quickly right the ship.
TransMedics
TransMedics (TMDX -3.53%) stock rocketed 222% higher in 2022. If not for a bear market keeping growth stocks under pressure, it probably would have reached the moon. This under-the-radar medical technology company is rapidly changing the way we preserve transplantable organs. Third-quarter revenue jumped a whopping 378% year over year.
During one clinical trial that exemplifies the value TransMedics' organ care system (OCS) provides, surgeons were willing to use 89% of hearts donated after cardiac death (DCD) if those hearts were kept fresh in the OCS. During the same trial, zero hearts kept in cold storage were utilized.
Keeping a donated heart fresh by providing it with oxygenated blood isn't new, but TransMedics OCS is the only device approved to preserve and transport multiple organs. It's currently approved to keep hearts, lungs, and livers fresh. Kidney transplants are more common than hearts, lungs, and livers combined, and the company could expand into this area in just a few years.
InMode
InMode (INMD 0.40%) is a medical device manufacturer that's increasingly popular among cosmetic surgeons. Using its handheld, minimally invasive devices, a provider can perform a wide array of cosmetic procedures in its offices without making any incisions.
Third-quarter sales of InMode's workstations increased by an impressive 29% year over year, but this isn't how the company will earn most of its money in the years ahead. High-margin revenue from consumable kits that need to be replaced after each procedure will allow InMode's bottom line to continue soaring long after the market for its workstations become saturated.
Unlike most Nasdaq-listed growth stocks that were hammered in 2022, InMode can fuel its future growth with internally generated profits. Net income over the past year worked out to a mind-blowing 41% of total revenue.
Despite its great position in the growing market for minimally invasive cosmetic procedures, you can buy InMode shares for just 17.3 times trailing earnings. Investors who buy the stock at this price and hold it could realize market-beating gains even if the company grows at half its previous pace.
