Investors were left frazzled by the steep 33% fall in the Nasdaq Composite last year. Many growth stocks have subsequently declined to levels that make them attractive long-term buys.
With bombed-out valuations and everyone heading for the exits due to four-decade-high inflation and surging interest rates, not every stock qualifies as a buy. You should go for companies with strong brand franchises, sturdy economic moats, and a great track record of consistent growth.
When a business does well, the share price should naturally follow over time. With lower valuations and lower share prices all around, it's a matter of picking the robust companies to include in your portfolio. Here are three growth stocks to consider accumulating for the long term.
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1. Mastercard
You might very well be carrying a Mastercard (MA -0.07%) branded debit or credit card. The payments processing company had issued around 3 billion cards at the end of September 2022, for 5% year-over-year growth despite persistent economic headwinds.
With a presence in more than 210 countries and territories, the company is well-positioned to continue its expansion.
Mastercard has demonstrated its resilience by posting healthy top- and bottom-line growth despite suffering a blip in 2020 because of the pandemic. Revenue increased from $16.9 billion in 2019 to $18.9 billion in 2021 while net income rose from $8.1 billion to $8.7 billion over the same period.
For the first nine months of 2022, the company continued its healthy momentum with revenue rising 20.1% year over year to $16.4 billion and net income rising 17.4% to $7.4 billion. Mastercard continued to generate healthy free cash flow through these periods, allowing it to raise its recent quarterly dividend by 16% year over year to $0.57 per share and declare a $9 billion share repurchase program.
With China's border reopening recently, along with the surge in air traffic as countries adjust to the pandemic's new normal, Mastercard should continue to see its revenue and net profit improve. With its worldwide presence and widespread connectivity to millions of merchants, the company is poised to capture more business in the years to come.
2. Lululemon
Lululemon Athletica's (LULU -0.03%) steady growth through the pandemic was no flash in the pan. The manufacturer of yoga and running apparel and footwear saw sales and profits rise sharply as more people emphasized healthy living and started exercising.
Revenue rose from $3.9 billion in February 2020, to $6.2 billion in January of 2022, while net income surged 51% over the same period to $975.3 million. Lululemon also generated free cash flow averaging $650 million over the three fiscal years.
There could be more to come from the yoga apparel specialist. The first nine months of fiscal 2023 saw revenue climb 29.3% year over year to $5.3 billion with net income jumping 36% year over year to $735 million, with evidence that the company is taking market share from competitors.
A new platform, Lululemon Studio, that was unveiled last September promises to increase members' connection by streaming workouts through the Studio Mirror. This device and its dynamic content could increase loyalty and spending per customer.
The company has also announced a five-year plan to double its 2021 revenue to $12.5 billion by 2026. Lululemon plans to focus its efforts on three strategic pillars: product innovation, guest experiences, and market expansion.
With its popularity and widespread brand awareness, the company looks to be heading in the right direction and has a high probability of attaining these goals.
3. Lemonade
Lemonade (LMND -0.46%) provides home, car, pet, and life insurance and uses artificial intelligence (AI) to deliver its services through a cloud-based platform.
The company has logged steady revenue growth from 2019 through the first nine months of 2022. Revenue started at $67.3 million in 2019 and ended at $128.4 million in 2021. For the first nine months of 2022, revenue has nearly doubled year over year to $168.3 million and has already exceeded 2021's full-year total.
With a business model dependent on technology and AI, the company can keep its costs much lower than traditional insurance companies. This allows it to offer more-attractive premiums and expand its customer base.
During its recent Investor Day, Lemonade said the car insurance business has a total addressable market of $320 billion, and it can tap into its superior analytics to price its insurance products.
The U.S. pet insurance market alone is worth $2.6 billion, the company said, and is growing at a compound annual rate of 25%. Based on 2021's data, more than 80 million households own a pet but only around 2.5% of those have purchased pet insurance, opening up a huge market.
These numbers suggest the growth that Lemonade could enjoy as it continues to expand its reach. Its reliance on AI should help it to continue delivering competitive prices that allow it to garner a larger customer base.
