Things don't always go as planned when investing in the stock market. While 2021 lured investors into thinking that stocks only move higher, 2022 provided a kick-in-the-pants reminder that stocks can go down, too. When the closing bell tolled on Dec. 31, 2022, all of the major U.S. stock indexes logged their worst year since 2008.
Growth stocks were hit particularly hard last year. The growth-dependent Nasdaq Composite (^IXIC 0.35%) finished 2022 lower by 33% and suffered a maximum decline of 38% from its November 2021 record high.
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But on Wall Street, huge declines provide equally enormous opportunities for long-term investors to pounce. Even though we'll never know ahead of time when bear markets will occur or how steep the drop will be, we do know that the broad-market indexes, including the Nasdaq Composite, tend to rise over long periods. This makes every double-digit percentage decline a buying opportunity.
What follows are five awe-inspiring growth stocks that you're going to regret not buying on the Nasdaq bear market dip.
Teladoc Health
The first incredible growth stock begging to be bought as the Nasdaq tumbles is telemedicine giant Teladoc Health (TDOC -1.27%). Despite grossly overpaying for its acquisition of applied health signals company Livongo Health in 2020 and taking two sizable writedowns last year, the future is looking bright for this pandemic darling.
The first thing to understand about healthcare stocks is that, pardon the pun, they're somewhat immune to economic downturns. People don't stop getting sick just because inflation rises or the U.S. economy weakens. This steadiness to demand for prescription drugs, medical devices, and healthcare services is one reason Teladoc can expect predictable revenue year in and year out.
What makes Teladoc so special is the role it's playing in transforming personalized care. When applicable, virtual visits are more convenient for patients, and they're providing physicians with easier access to critical data for their chronically ill patients. The end result of this ease-of-access should be improved patient outcomes and lower expenses for health insurers. It's a win for the entire healthcare treatment chain.
In 2023, the biggest catalyst for Teladoc Health is simply putting its one-time expenses tied to its Livongo buyout in the rearview mirror. With bountiful cross-selling opportunities and abundant cost-saving potential, Teladoc's bottom line could be a pleasant surprise in the new year.
Palo Alto Networks
A second jaw-dropping growth stock that you'll regret not scooping up during the Nasdaq bear market drop is cybersecurity stock Palo Alto Networks (PANW 0.33%). Even though growing concerns about a U.S. recession have weighed on Palo Alto's share price of late, the company offers more than enough tailwinds to outpace the broader market.
Similar to Teladoc, one of Palo Alto's foundational tailwinds is the evolution of cybersecurity into a basic necessity industry. Regardless of how well or poorly the U.S. economy performs, hackers and robots don't take time off from trying to steal sensitive information. This leads to steady subscription demand for security solutions in any economic environment.
The intrigue surrounding Palo Alto Networks has to do with its four-year (and counting) shift to promoting cloud-based software-as-a-service (SaaS) security solutions. Though the company still sells physical firewall solutions, Palo Alto's management team understands that SaaS solutions provide higher margins, steadier sales, and reduce the likelihood of customer churn.
Additionally, Palo Alto has done an excellent job of using bolt-on acquisitions to its advantage. Acquiring smaller businesses has helped the company expand its service portfolio and broadened its cross-selling opportunities. Look for Palo Alto Networks to sustain a 20% growth rate for the foreseeable future.
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Airbnb
The third awe-inspiring growth stock you'll regret not buying as the Nasdaq plunges is stay-and-hosting platform Airbnb (ABNB 0.66%). Although the COVID-19 pandemic absolutely rocked Airbnb's hosting-and-travel-driven operating model for a short period, the company's key performance metrics are undeniably headed in the right direction.
To start with, the trajectory of annual bookings has been phenomenal. Through the first nine months of 2022, Airbnb was averaging about 100 million combined nights and experiences booked per quarter, equating to an annual run rate of around 400 million. By comparison, it totaled 115 million bookings in the entirety of 2017. In five years, Airbnb has nearly quadrupled its bookings, which clearly demonstrates its operating model isn't a fad.
Perhaps the most exciting aspect of Airbnb's model is long-term stays (defined as stays of at least 28 days). This has been the company's fastest-growing segment, and it looks to be a reflection of a permanently changed labor market in the wake of the pandemic. With more people working remotely than ever before, Airbnb can be especially appealing to folks not tied to a single location.
Airbnb is also just scratching the surface with its Experiences segment. The travel industry represents an $8 trillion opportunity, and it seems only logical that Airbnb will eventually partner with the food and transportation companies to take an even larger piece of this $8 trillion pie.
Bark
A fourth stellar growth stock you'll regret not picking up during the Nasdaq bear market drop is dog-focused products and services company Bark (BARK -0.45%). Though virtually every company (including Bark) that went public in 2020 or 2021 via a special purpose acquisition company (SPAC) has been clobbered, Bark presents with clear competitive edges that should allow it to stand out in 2023 (and well beyond).
To start with, the pet industry has proved to be about as recession-resistant as any industry on the planet. Data from the American Pet Products Association (APPA) shows that it's been more than a quarter of a century since year-over-year spending on our furry, gilled, feathered, and scaled "family members" has declined in the U.S. on a year-over-year basis. To boot, more U.S. households own pets now than at any point since the APPA began surveying households in 1988.
The factor that makes Bark such an interesting investment is its direct-to-consumer focus. Though it does have its products in tens of thousands of brick-and-mortar stores, approximately 90% of its revenue comes from its 2.24 million subscribing customers. The beauty of subscription-driven operating models is they help to reduce overhead costs by making inventory needs transparent. For Bark, this should mean a push to profitability within the next 12 to 24 months.
Another selling point for Bark is add-on sales. The company introduced three new product/service offerings during the pandemic, all of which can boost average order value and increase operating margins. In particular, Bark Bright, the company's dental service offering, has been delivering triple-digit sales growth.
Redfin
The fifth and final awe-inspiring growth stock you'll regret not buying on the Nasdaq bear market dip is technology-driven real estate company Redfin (RDFN 0.65%). Despite real estate companies getting rocked by the highest mortgage rates in more than a decade, Redfin possesses advantages that should make it a popular choice for sellers in a challenging environment.
For instance, traditional real estate agencies charge anywhere from 2.5% to 3% of the sale price of a home to act as agents for buyers and sellers. Meanwhile, Redfin charges only 1% or 1.5%, depending on how much previous business was done with the company. Based on the typical U.S. home selling for $350,000 in the four weeks ending Jan. 1, 2023, Redfin can help save sellers up to $7,000 in costs. That's not chump change in a weakening U.S. economy.
Furthermore, Redfin offers a variety of personalization services that traditional real estate companies can rarely, if ever, match. This includes a Concierge service tasked with helping sellers maximize the value of their home. These value-added services are differentiators and margin-drivers for the company.
As a final note, Redfin recently announced that it would be shutting down its iBuying operations -- the segment that purchased homes for cash, which were to be later sold at a profit. Closing this segment will reduce the company's expenses and free up cash on its balance sheet.
Like Bark, Redfin could be pushing for recurring profitability within the next 24 months.
