2 Bargain-Basement Growth Stocks Down 49% and 87% to Buy Before the Nasdaq Rebounds

The Nasdaq Composite dropped into bear market territory in late 2021, and the technology-heavy index is still 30% off its high. That decline has been catastrophic for many growth investors, but there is a silver lining to the situation. The Nasdaq has never failed to recoup its losses from previous bear markets, and many Nasdaq growth stocks are trading at valuations not seen in years.

That creates a buying opportunity for patient investors.

Amazon: Down 49%

The first stock worth buying is Amazon (AMZN -1.65%). The retail giant admittedly struggled last year. Revenue increased only 9% to $514 billion, and the company reported a GAAP loss of $2.7 billion, down from a profit of $33.4 billion in the prior year. But the challenging economy is to blame for those disappointing results. Inflation-fueled softness in consumer spending has hindered top-line growth, and price increases in fuel and electricity have been a headwind to profitability.

Fortunately, the economic environment will improve at some point, so the 49% decline in the company's share price looks like an overreaction. Of course, it may be several quarters before the situation gets better, but the long-term investment thesis is still intact: Amazon has a strong competitive position in e-commerce, cloud computing, and digital advertising, and all three markets are growing quickly.

The Amazon brand is synonymous with online shopping. Its marketplace receives nearly twice as many visitors as the next-closest online shopping destination, and it accounted for 38% of retail e-commerce sales in North America and Western Europe last year. Additionally, Amazon Web Services (AWS) is the gold standard in cloud computing. AWS held a 32% market share in cloud infrastructure and platform services as of the fourth quarter, topping No. 2 Microsoft by 9 percentage points. Finally, Amazon is the fourth-largest ad tech company in the world, and it's gaining ground on the industry leader, Alphabet's Google.

Forecasts from Grand View Research suggest that all three markets will grow at a double-digit pace through the end of the decade. Retail e-commerce sales are expected to increase 10% annually through 2030, while cloud computing and ad tech sales are expected to grow 14% annually. At the very least, Amazon should be able to match those figures, meaning investors can reasonably expect double-digit sales growth through the end of the decade.

So what? That makes its current price-to-sales ratio of 1.9 look positively cheap, and its present valuation is a bargain compared to the five-year average of 3.7 times sales. That's why this FAANG stock is worth buying.

Roku: Down 87%

The second stock worth buying is Roku (ROKU 1.58%). The streaming giant struggled last year as brands cut ad budgets to compensate for inflation-fueled weakness in consumer demand. Revenue rose just 13% to $3.1 billion, and the company reported a GAAP loss of $498 million, down from a profit of $242 million in the prior year. But ad spend will normalize when the economy bounces back, and the investment thesis for Roku remains intact, which means investors can ascribe the 87% decline in Roku's share price (in part) to panic selling.

Much like Google Search is the on-ramp to the internet, Roku is becoming the gateway to streaming entertainment. Its platform connects viewers with every major subscription and ad-supported service, and the Roku brand is a consumer favorite due to its superior operating system and reputation for affordability. In fact, Roku ranked as the fastest-growing brand (in any product category) among Gen Z and millennial consumers in 2022.

Better yet, Roku is the most popular streaming platform in the U.S., Canada, and Mexico as measured by streaming time, and Roku OS -- the only operating system built specifically for televisions -- should help it maintain that leadership. Roku OS is the top-selling smart TV operating system in the U.S., Canada, and Mexico, and the company plans to leverage that brand authority by building its own smart TVs that address the higher end of the market. Until now, Roku has relied solely on manufacturing partners.

In a nutshell, Roku's ability to attract viewers makes it a valuable partner to content producers and advertisers, and the company is working to drive adoption and deepen engagement by expanding its hardware offering. Roku is also investing in content for its ad-supported streaming service, The Roku Channel, and those investments are paying off. Engagement with The Roku Channel increased 85% in the fourth quarter, and it once again ranked among the five most viewed channels on the platform.

Looking ahead, connected-TV advertising spend in the U.S. alone is expected to increase 17% annually to reach $100 billion by 2030, according to BMO Capital Markets. But Roku should be able to grow revenue even faster given its leadership position. That makes its current valuation of 2.7 times sales look cheap, and that price is certainly a bargain compared to the five-year average of 11.8 times sales. That's why investors should buy a small position in this growth stock today.