2 Phenomenal Growth Stocks the Smartest Investors Are Buying In a Bear Market

Hedge fund managers Jim Simons of Renaissance Technologies and Jason Kritzer of Eaton Vance Management have helped their funds outperform the S&P 500 over the last three years. That may not sound impressive, but a relatively small number of professional money managers actually beat their benchmarks, meaning Simons and Kritzer are in rarified air. It also means they could be a great source of inspiration for individual investors.

Both hedge fund managers have been buying stocks throughout the bear market that started in 2022. Since the beginning of last year, Simons doubled his fund's stake in Airbnb (ABNB 0.10%), while Kritzer added to his fund's stakes in Paycom Software (PAYC -0.71%) and Airbnb.

Is it time to buy these growth stocks?

1. Airbnb

Airbnb is an online travel agency (OTA) with a disruptive business model. Rather than building rental properties and hotels, the company crowdsources inventory from a network of more than 4 million hosts. That makes Airbnb far more agile than traditional hospitality companies. It can add new listings to its marketplace in minutes, without spending millions of dollars, and it can easily aim marketing campaigns at potential hosts in high-demand destinations (or potential guests in high-supply destinations) to efficiently build and use its inventory.

Airbnb also provides guests with greater flexibility in terms of property type and location. Its listings range from typical suburban homes and urban apartments to luxurious estates and designer penthouses. Additionally, Airbnb recently added flexible search parameters and search categories that help guests find the perfect rental in places they may have never thought to look. That means the platform is evolving into a recommendation engine.

In spite of economic headwinds, Airbnb reported strong financial results in the third quarter. Revenue increased 29% to $2.9 billion, and free cash flow (FCF) climbed 81% to $960 million, representing a solid FCF margin of 33%. And investors have good reason to believe the company can maintain its lofty growth trajectory for years to come.

Airbnb's asset-light business model gives it an edge over traditional hospitality companies, and it has carved out a strong position in the OTA market. Airbnb currently ranks as the second-most-visited website in the accommodation and hotels category, and it ranked as the fourth-most-downloaded travel app worldwide in 2022, according to Apptopia. Airbnb reported a gross booking value of $61 billion over the past year, but management estimates its total addressable market at $3.4 trillion, meaning the company has only realized a fraction of its potential.

Shares trade at 8.3 times sales, a discount to the historical average of 18.1 times sales. That does indeed create a worthwhile buying opportunity for long-term investors.

2. Paycom Software

Paycom provides human capital management (HCM) software that helps businesses manage all aspects of the employee lifecycle, from hiring through retirement. Its core product is payroll software, but it also provides tools for talent acquisition, time and attendance, scheduling, and human resources (HR) management.

HCM software may not be exciting technology, but Paycom has distinguished itself through product innovation and great customer service. Its HCM suite includes more than two dozen applications, meaning businesses can deploy a single platform rather than a patchwork of point solutions.

Additionally, Paycom personalizes its relationships with customers by assigning a dedicated service specialist to each client. Those qualities make its HCM platform very sticky, as evidenced by a steady uptick in retention over the years.

Paycom recently delivered a strong third-quarter report. Revenue climbed 30% to $334 million, and earnings soared 73% to $0.90 per share. Better yet, investors have good reason to believe that momentum will continue. Paycom has captured just 5% of its total addressable market, but the company is executing on a strong growth strategy.

Last year, Paycom launched the industry's first self-service payroll software, nicknamed Beti (Better Employee Transaction Interface). Beti automates payroll by requiring workers to review and approve paychecks prior to finalization. That leads to fewer payroll errors, meaning HR administrators spend less time fixing mistakes.

Thanks to Beti, Fast Company recognized Paycom as one of the most innovative companies in the world last year. Better yet, it was the only HR and payroll technology company to make the list, and that capacity for innovation should keep Paycom on the cutting edge of the industry.

Shares currently trade at 14 times sales, a discount to the three-year average of 21.8 times sales. For that reason, investors should buy a few shares of this growth stock today.