While I hate being the bearer of bad news, stock market corrections are a perfectly normal part of the investing cycle. Since the beginning of 1950, the benchmark S&P 500 has undergone 39 separate double-digit percentage corrections, according to data from sell-side consultancy firm Yardeni Research. In other words, the drubbing Wall Street took in 2022 is par for the course when investing for the long run.
When the major indexes crossed the finish line last year, it was the growth-focused Nasdaq Composite (^IXIC 1.59%) that was hit hardest. The Nasdaq, which led the broader market to new highs in 2021, shed 33% of its value in 2022 and continues to stew in a bear market.
Image source: Getty Images.
But there's a silver lining in this bad news. Though we'll never be able to forecast exactly when a bear market will occur or how steep the decline will be, we do know that every previous bear market in the major U.S. stock indexes (including the Nasdaq) was eventually whisked away by a bull market. It effectively means that every bear market is the ideal time to put your money to work.
It's an especially lucrative time to go shopping for growth stocks. What follows are five stunning growth stocks you'll regret not buying on the Nasdaq bear market dip.
Nio
The first phenomenal growth stock just begging to be bought during the bear market decline is China-based electric vehicle (EV) manufacturer Nio (NIO 0.25%). Although supply chain issues continue to weigh on Nio's production expansion efforts, a number of headwinds have been safely put in the back seat.
For the past couple of years, China stocks carried extra investment risk due to the country's zero-COVID strategy, as well as the possible delisting of China stocks by U.S. regulators. However, China has abandoned its zero-COVID strategy and reopened its economy. What's more, regulators gained hold of three years' worth of financial audits for Chinese firms, which removes the fear of delisting. In short, Nio is considerably de-risked from where things stood four months ago.
But what's really been impressive about this company is its various forms of innovation. Nio has been introducing at least one new EV each year and has seen sales of its ET7 and ET5 sedans take off since hitting showrooms last year. With the exception of January, when production was constrained by factory closures as a result of the Chinese New Year, Nio has delivered in excess of 10,000 EVs every month since June 2022, with its sedans regularly accounting for more than half of those deliveries.
Nio's out-of-the-box innovation is on display as well. In August 2020, the company announced the rollout of its battery-as-a-service (BaaS) subscription. BaaS allows its EV buyers to charge, swap, and upgrade batteries at more than 1,300 power swap stations and more than 1,200 power charger stations. In exchange for a reduced EV purchase price, Nio nets high-margin, recurring subscription revenue from buyers via BaaS and keeps buyers loyal to the brand.
Exelixis
The second amazing growth stock you'll be kicking yourself for not buying during the Nasdaq bear market dip is biotech stock Exelixis (EXEL 1.84%). Despite occasional clinical trial failures, cancer-drug developer Exelixis is well positioned to grow by double digits.
A little over a week ago, Exelixis announced that a late-stage study involving its blockbuster drug Cabometyx in combination with Roche's Tecentriq failed to meet its primary endpoint of a statistically significant improvement in progression-free survival in a trial for patients with previously treated advanced kidney cancer. But failures happen. It's part of being a drug developer.
What's far more important is that Exelixis has around six dozen clinical trials ongoing involving Cabometyx as a monotherapy or combination treatment for a variety of cancer types. It only takes a handful of success stories to significantly expand Cabometyx's sales and pricing power. We've already witnessed one of these studies finding the mark, which led to Exelixis and Bristol Myers Squibb gaining first-line approval for their combination treatment for renal cell carcinoma.
Furthermore, Exelixis has the cash to fund ongoing internal development, collaborations, and possibly even acquisitions. The company closed out 2022 with approximately $1.31 billion in cash, cash equivalents, and short-term investments, and had another $756.7 million in long-term investments.
Image source: Walt Disney.
Walt Disney
A third stunning growth stock you'll regret not adding during the Nasdaq bear market drop is the popular "House of Mouse," Walt Disney (DIS 1.54%). Though Walt Disney is a mature business, it's expected to sustain a double-digit earnings growth rate for the next half-decade. That absolutely makes it a growth stock.
The biggest competitive edge that Disney offers is that its business can't be duplicated. While there are other theme parks consumers can visit and other movies on the big screen, Disney's characters and stories, along with the emotion, engagement, and imagination they evoke in consumers, can't be duplicated by any other company.
As I've previously suggested, the value of this irreplaceability can be seen in Walt Disney's pricing power. Since Disneyland opened its doors in Southern California in 1955, admission prices have risen by 10,300%. By comparison, the U.S. inflation rate has jumped a little over 1,000% over the same time span. Disney has also been able to raise prices on its ad-free streaming service, Disney+, while losing only a small fraction of its subscribers.
The next step in Walt Disney's evolution is turning its money-losing streaming segment into a profit machine. Newly reappointed CEO Bob Iger increased monthly subscription prices and is targeting profitability for this segment toward the end of fiscal 2024. Once streaming becomes cash-flow positive, I'd be surprised to see Disney stock anywhere near $100 per share.
Innovative Industrial Properties
The fourth magnificent growth stock that you'll regret not scooping up during the Nasdaq's bear market swoon is marijuana-focused real estate investment trust (REIT) Innovative Industrial Properties (IIPR 2.21%). In spite of rent-collection speed bumps in recent months, IIP, as Innovative Industrial Properties is known, can show patient investors the green.
The prevailing concern with IIP is that its on-time rental collection rate has dropped from 100% to 92% as of the end of February 2023. But it's important to understand that all REITs eventually deal with delinquencies. It's how companies handle their delinquencies that matters. IIP's fourth-quarter report and year-to-date update shows it's working through these delinquencies and should be able to sustain these revenue streams or outright sell these properties for cash.
Another key point with Innovative Industrial Properties is that 100% of its properties are triple-net leased (also known as "NNN leased"). NNN-leased properties require the tenant to cover all expenses, including utilities, maintenance, and even property tax and insurance. While NNN leases reduce the rental income IIP can expect to receive, it also removes any chance of surprise expenses or inflation hurting the company.
Lastly, Innovative Industrial Properties might be one of the few pot stocks benefiting from weed remaining illegal at the federal level. Since most cannabis companies have limited access to basic financial services, IIP has been able to work out sale-leaseback agreements that benefit both parties. Cultivators and processors get cash they sorely need from IIP, and IIP lands long-term tenants through this program.
Alphabet
A fifth stunning growth stock that you'll regret not buying during the Nasdaq bear market dip is Alphabet (GOOGL 1.27%) (GOOG 1.25%), the parent company of internet search engine Google, autonomous vehicle company Waymo, and streaming platform YouTube.
At the moment, advertising weakness is Alphabet's biggest headwind. When the probability of a recession materializing rises, advertisers pull back on their spending. But this is also a two-sided coin. Even though recessions are inevitable, they're typically short-lived. Buying ad-driven stocks during these short swoons often allows investors to take advantage of long-winded economic expansions.
Alphabet's competitive advantage isn't going away anytime soon, either. Since December 2018, data from GlobalStats shows that Google has accounted for roughly 91% to 93% of global internet search share. Having a 90-percentage-point lead over its next-closest competitor allows Google to command significant pricing power for ad placement.
Alphabet's ancillary operating segments provide plenty of promise, too. YouTube is the second most visited social platform in the world, with Shorts getting more than 50 billion daily views. Meanwhile, Google Cloud has worked its way up to a 10% share of global cloud infrastructure-service spending.
Based on both forward-year earnings and future cash flow, Alphabet is cheaper now than at any point since it became a publicly traded company.
