The bear market afflicting the Nasdaq Composite (NASDAQINDEX: ^IXIC) over the past year was felt by many investors. 2023 may signal the beginning of a turnaround of this volatile period, but there's no way for an investor to predict for sure. Meanwhile, the index is still trading down by double digits from its all-time high.
The stock market's history taught investors that while some bear environments may resolve in weeks, others continue for months, or even a few years. Regardless, in all cases, no bear market has continued indefinitely, and the market not only recovered but rebounded from these periods without fail. This means that investors right now could be witnessing a perfect moment to beef up their portfolios with great businesses trading down.
If you have $5,000 to invest in the current market -- money that you won't soon need for expenses or bills -- here are two Nasdaq stocks to consider adding to your buy basket right now.
1. Upstart
Upstart (UPST -7.89%) is on a mission to revolutionize the lending industry, a space that has long been in need of disruption. Acting as a loan marketplace, with a platform driven by AI and machine learning, Upstart seeks to expand the lending industry to new groups of consumers who have historically been left out, often because of an insufficient FICO score.
Rather than looking only at an applicant's FICO score, Upstart's proprietary platform takes a range of factors into account, such as their professional and educational background. The company's unique lending model, predicated on over 1,000 data points it uses to determine whether to approve or deny a loan application, has proved to be a sticky model that financial institutions seem keen to capitalize on.
Right now Upstart is seeing a contraction in loan volume, and it's carrying more loans than usual on its balance sheet. The decrease in loan volume goes back to a range of factors, including the fact that fewer consumers are seeking loans and Upstart's platform is approving fewer loans.
In a normal economic environment, most of Upstart's loans were purchased by institutional investors. However, these investors are understandably more hesitant to part with their capital in the current environment -- not only due to the level of risk, but because the cost of buying the loans is higher with interest rates still so elevated.
While this creates a situation where revenue growth is slowing, and the company slipped back into unprofitability, continued adoption of its platform by banks and credit unions, as well as its expanding network of auto lending partners, bode well for its future recovery as the economic situation eventually rebounds.
In the 2022 earnings call, CEO Dave Girouard noted that, "Despite the fact that our lending volume in 2022 was down 14% versus the prior year, our contribution profit was actually up 13% year on year."
Upstart's contribution profit for the 12-month period totaled $447 million. Revenue was down and the company was unprofitable on a GAAP basis in the year, but it still reported $842 million on the top line for the 12-month stretch, and adjusted EBITDA of $37 million. And its pool of bank and credit union partners jumped 120% year over year in 2022, while its auto dealer network soared 90%.
Upstart also reported that its model automation reached the highest ever level in the company's history at 82%. This means that 82% of loans processed on the platform were fully automated without any humans involved.
For investors that believe in the potential of this platform, and its ability to disrupt and change the lending space -- a notion that clearly more more institutional partners are buying into -- the stock could present an intriguing opportunity for the risk-resilient. Even a relatively small position in a well-diversified portfolio could yield enviable returns over the next five to 10 years.
2. Intuitive Surgical
Intuitive Surgical (ISRG -1.93%) boasts an established business and virtually unrivaled market leadership in an altogether less volatile industry than the prior stock pick. The company is a leader in the field of surgical robotics, a space forecast to be worth $18 billion by 2030.
Intuitive Surgical is something of a unique presence in this space with its first-mover's advantage. Its flagship product, the da Vinci Surgical system, was approved more than two decades ago. Since that time, the company has grown its share of this multi-billion-dollar space to a whopping 80%.
Today the da Vinci Surgical system is used in a wide variety of minimally invasive surgical procedures, from thoracic to colorectal and general to gynecological procedures. Its portfolio now also includes the Ion system, which is specifically for minimally invasive lung biopsies.
Intuitive Surgical's business model also enjoys commitment, as medical providers make a significant investment when they purchase one of its systems.
The da Vinci system alone is estimated to cost upward of $2 million. However, the upkeep of this investment, such as replacement instruments and tools, as well as training to use these systems, are ongoing sources of recurring revenue and profits for Intuitive Surgical. In fact, Intuitive Surgical makes more money from the instruments, accessories, and services it sells to accompany its surgical systems than the actual systems themselves.
Case in point: In full-year 2022, Intuitive Surgical generated $6.2 billion in revenue. Of that amount, $1.7 billion was derived from sales of its surgical systems, while $3.5 billion was attributable to instruments and accessories revenue and $1 billion to services revenue. As of the end of 2022, the company had 7,544 da Vinci surgical systems installed worldwide.
Recent quarters have seen procedure volume decline, though due to factors outside Intuitive Surgical's control, such as COVID-19 resurgences. This has impacted the rate of revenue growth, and year-over-year earnings growth has slowed. However, the company is still profitable, and recorded net income of $1.3 billion in full-year 2022.
The healthcare company has a superb track record of revenue growth and profitability, and demand for its systems is growing as adoption of these tools widens around the world. For the company and its shareholders, this could present a golden growth and investment opportunity for the long term.
