Fear of a recession brought about by runaway inflation and soaring interest rates keeps making life difficult for investors of all stripes. The Nasdaq Composite index slid into a bear market in late 2021, and it's still down around 26% from its former peak.
From its inception more than 50 years ago through 2021, the Nasdaq Composite suffered from at least a dozen bear markets. All of them, the dot-com crash included, have been wiped away by subsequent recoveries.
A Nasdaq bull market could be under way already, or it might not get started for another year. Either way, investors who buy these top growth stocks now and hold them over the long run have an excellent chance to realize market-beating gains.
StoneCo
Strong growth driven by pandemic lockdowns and an endorsement from Warren Buffett helped shares of StoneCo (STNE 0.32%) rocket up to dizzying heights in early 2021. Buffett's holding company, Berkshire Hathaway, still owns more than 4% of the Brazilian e-commerce company, but the stock has tumbled more than 90% from its previous peak.
StoneCo offers merchants throughout Brazil increasingly popular financial services such as banking and payment processing. The company also markets a collection of software solutions designed for merchants in Brazil.
According to StoneCo, Brazil's e-commerce industry grew sales by 24.6% in 2022. The stock looks like a buy because the company's share of this market is increasing. It reported a total payment volume figure that grew 33.4% last year.
STNE Revenue (TTM) data by YCharts
StoneCo is a well-run business, with revenue expanding much faster than operating expenses. In the fourth quarter, the company reported net income according to generally accepted accounting practices (GAAP) that worked out to 2.9% of total revenue. In the previous year's period, the company reported a steep loss.
Right now, you can buy shares of StoneCo for just 14.9 times the amount of free cash flow its operations generated over the past year. Investors who buy at this modest valuation will come out ahead if the business creeps forward at a single-digit percentage from year to year. With a growing share of Brazil's e-commerce industry, we can reasonably expect this business to exceed the market's low expectations.
The Trade Desk
Alphabet and Meta Platforms are the most successful advertising businesses the world has ever known, but they're a long way from perfect. As an independent platform for buyers of ad inventory, The Trade Desk (TTD 3.35%) is eating its competitors' lunches.
In the fourth quarter of 2022, The Trade Desk reported sales that soared 24% year over year. Over the same time frame, Meta reported a 4% revenue drop and Alphabet reported Google Advertising sales that shrank about 4% too.
Advertisers with the biggest budgets don't want their brands appearing next to problematic user-generated content, but that's not the only reason The Trade Desk keeps gaining a share of the digital ad market from its largest competitors. Meta and Alphabet are considered walled gardens that own all the content they ask advertisers to bid on. Big ad budgets keep migrating to The Trade Desk because it operates a more transparent independent platform.
The Trade Desk isn't the only independent ad-buying platform out there, but I expect it to remain the largest for the foreseeable future. That's partly because its open-source approach to identifying and tracking viewers while maintaining their anonymity is becoming the industry standard.
The Trade Desk stock is down sharply from its previous peaks, but it's still trading at 53 times forward-looking earnings expectations. At this sky-high valuation, any signs of a slowdown over the next several years could cause the stock to fall hard. A strong position in the growing market for digital ads makes this stock a smart buy right now, but only if you make it a relatively small part of a larger, diversified portfolio.
