2 Magnificent Growth Stocks That Billionaires Bought in a Bear Market

The S&P 500 index dropped into a bear market last year as many investors sold stocks, hoping to avoid the pain of a possible recession. But some of the wealthiest hedge fund managers on Wall Street did the exact opposite. They treated the decline as a buying opportunity.

Israel Englander of Millennium Management nearly doubled his stake in HubSpot (HUBS 2.96%) last year, and he added a few shares to his position in Paycom Software (PAYC 0.74%). Meanwhile, Louis Bacon of Moore Capital Management started a position in Paycom during the second quarter, and he added to that position in the third and fourth quarters. Bacon also bought shares of HubSpot during the fourth quarter.

Is it time to buy these growth stocks?

1. HubSpot

HubSpot provides customer relationship management (CRM) software to small and medium-sized businesses (SMBs). Its products include applications that boost productivity across marketing, sales, service, and operations teams; it also includes a content management system that helps developers build engaging web experiences for customers. Taken together, those tools make it possible to develop leads, convert leads into customers, and delight those customers with a high-quality digital experience across every phase of the customer journey.

HubSpot pioneered the concept of inbound marketing, a strategy that replaces intrusive ads forced upon consumers with relevant web content that attracts consumers at the right time. Traditional market tactics tend to be irritating, but inbound marketing feels organic. HubSpot also uses a "freemium" pricing strategy. It offers free and paid product tiers with increasing levels of functionality, meaning clients can try new products without paying and they can add more features as their businesses grow. That strategy is gaining traction in the market.

HubSpot is the market leader in CRM software for small businesses. Better yet, research company G2 recently named HubSpot the best global software seller in any category, a distinction that reflects its strong market presence and high user satisfaction scores.

HubSpot's growth slowed in the fourth quarter amid economic headwinds, but the company still reported solid financial results. Revenue increased 27% to $470 million and non-GAAP earnings soared 91% to $1.11 per diluted share. As a caveat, company projections imply growth will slow more in the current quarter, but HubSpot should have no problem regaining its momentum as economic conditions improve.

Looking ahead, management says its addressable market will reach $72 billion by 2027, and given its strong foothold in the SMB segment, the company is well positioned to benefit from that rising tide. But HubSpot is also building new tools for payments and commerce that should make its CRM platform even more compelling. That combination of a strong current offering and a strong growth strategy should give investors confidence, and it should help HubSpot take market share in the years ahead.

On that note, shares currently trade at 11.2 times sales, a discount compared to the three-year average of 17.2 times sales. That creates an attractive buying opportunity for investors.

2. Paycom Software

Paycom provides human capital management (HCM) software to businesses. Its platform includes applications for talent acquisition, labor management, payroll, and human resources (HR) management. Those tools address every phase of the employee lifecycle, allowing clients to manage their workers from recruitment through retirement from a single platform.

The broad scope of the Paycom platform gives the company an advantage. Most organizations now rely on point solutions from multiple vendors to meet their HCM needs. That means HR staff must often enter and maintain employee data across multiple databases. But Paycom eliminates that administrative burden. Its platform allows clients to replace disjointed solutions with an integrated suite of HCM software

That value proposition is clearly appealing. Paycom delivered solid financial results last year despite the challenging economic climate. Revenue climbed 30% to $1.4 billion and earnings soared 44% to $4.84 per diluted share. But investors have good reason to believe that momentum will continue. Paycom has captured just 5% of its addressable market, and the company has shown itself to be quite innovative.

Last year, Paycom introduced the industry's first self-service payroll software. The product, nicknamed Beti (Better Employee Transaction Interface), effectively automates payroll by requiring employees to review and approve their pay before processing. That leads to fewer errors, meaning administrators spend less time fixing payroll problems. That can result in cost savings of up to $250,000 per year for a 1,000-employee organization.

Here's the upshot: HCM software may not be exciting, but good investments are often boring. HCM software is crucial to many businesses, and Paycom has proven itself a capable operator. The stock now trades at 13 times sales, near its three-year low of 12.1 times sales and well below the three-year average of 21.5 times sales. At that price, now is a great time to buy this growth stock.