Buying in a bear market can be a great move if you pick quality stocks and hold them for the long haul. Some stocks struggled so badly over the past year that they are trading around multiyear lows.
Three stocks that fit that criteria and while still generating positive growth numbers include Invitae (NVTA -55.88%), Salesforce (CRM -0.57%), and Tesla (TSLA -1.92%). Should you buy these three growth stocks right now, or are tougher times ahead for their businesses?
1. Invitae
Diagnostics company Invitae has plenty of long-term promise. Genetic testing is growing in popularity with the 2020 U.S. market worth just over $4 billion. By 2027 it is projected to crack double digits at $10.3 billion, according to data from Fortune Business Insights.
The enthusiasm for the industry is based on its potential to help diagnose diseases earlier and possibly even prevent them entirely. The hesitation about the industry is that it's clear that it's still in its early growth stages. Whether Invitae will be around long enough to capitalize on those opportunities is the big question, as the company is burning through tons of cash.
During the first nine months of 2022, the company reported revenue of $393.8 million, an increase of 18% from the prior-year period. But with goodwill and other asset impairment charges of $2.3 billion, the company has been up to its ears in losses, with a net loss of just over $3 billion over the past three quarters.
However, even if you factor out the company's massive impairment expenses, Invitae's pretax loss during that stretch would still total $722 million -- more than three times the $203.1 million pretax loss it incurred over the first three quarters of 2021.
It's an uphill battle for Invitae, and the mounting losses and concerns about its cash flow are a few big reasons why growth investors are hesitant about the company. At less than $2 a share, Invitae is trading around its lowest levels ever -- it went public in February 2015.
There's plenty of risk with this stock, so even though Invitae is severely discounted, you shouldn't rush out to buy shares of the company anytime soon. Until there's some better cash flow or at least much stronger growth numbers, this is a stock I'd avoid.
2. Salesforce
Salesforce is a stock that you might expect would be struggling this year, since advertising spend is down and companies are cutting back on expenses. Among Salesforce's diverse business segments, advertising (and marketing) plays a significant role, and its business centers around its customer relationship management solutions. But one expense that is usually among the first to go when companies are concerned about a recession is marketing.
However, that doesn't mean Salesforce's business isn't growing. Sales are up, but the problem is that the growth rate has slowed significantly.
CRM Revenue (Quarterly YoY Growth) data by YCharts
Things may get worse for the company before they get better, with a recession potentially on the horizon this year. At a forward price-to-earnings (P/E) multiple of 23, Salesforce stock is still expensive compared to the average stock on the S&P 500 -- it trades at 17 times its future profits.
Salesforce's stock hasn't traded this low since 2018, but I still wouldn't buy it right now, given the challenges ahead. Plus, with the company in the midst of a change in leadership and Marc Benioff taking over as sole CEO, there's some added uncertainty in the mix that makes it even easier to justify not buying shares of Salesforce just yet. Investors are better off taking a wait-and-see approach with the stock.
3. Tesla
For a long time, Tesla looked like the stock that could do no wrong. The electric vehicle maker was a popular buy with retail investors, and even as growth stocks were in free fall last year, the wheels didn't really come off for Tesla's stock until CEO Elon Musk bought Twitter. Since Oct. 27, when he took over at Twitter, shares of Tesla nosedived 52% (during that time frame, the Nasdaq Composite declined a modest 3.8%). Investors may have grown concerned about Musk's competing priorities.
Tesla's business itself hasn't been doing badly, as sales totaling $21.5 billion in its most recent reported quarter (for the period ended Sept. 30) were up 56% year over year. Net income of $3.3 billion also doubled from a year ago.
While the results are good now, the danger is that Musk may be overselling just how autonomous his vehicles are. In September 2022, there was a class action lawsuit launched against the company, alleging that the company's vehicles are nowhere near being fully self-driving and that Tesla's advertising has been deceptive.
What's even more noteworthy is that one of the largest automakers in the world, Ford Motor Company, has effectively given up on the dream and is no longer pursuing making fully autonomous vehicles. Tesla's business is strong today, but in the bigger picture, there may be some doubts starting to form around its future, which could be a reason why investors aren't buying the hype anymore.
The stock is trading today at a forward P/E of 24, which is a bit expensive but a far more reasonable multiple than in the past, when Tesla wasn't generating much in the way of profits and its earnings multiples were in the triple figures. Tesla's stock hasn't traded at this low of a price since August 2020.
But with more headwinds possibly on the way due to a weakening economy, Tesla is another beaten-down stock I wouldn't buy just yet. And Musk adds some extra volatility to it as an investment that I would rather just do without.
