If there's a reminder that new and tenured investors need from time to time, it's that the bear eventually wakes up from hibernation. We may not like double-digit percentage declines in the broader market, but they're a natural part of the long-term investing cycle.
Last year, all three major U.S. stock indexes plummeted into a bear market, with the innovation-driven Nasdaq Composite (^IXIC 0.10%) taking the brunt of the pain. When the curtain closed on 2022, the Nasdaq had lost 33% of its value.
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Despite the short-term pain and emotional angst that can accompany bear markets, they're also known for providing patient investors with once-in-a-decade, or perhaps once-in-a-lifetime, opportunities to buy stakes in incredible businesses at a discount. After all, every bear market prior to the current one has eventually been erased from investors' memories by a bull market.
Bear markets can be a particularly smart time to invest in growth stocks ahead of the next bull market. What follows are five growth stocks you'll regret not buying during the Nasdaq bear market dip.
Alphabet
The first surefire growth stock to buy during the current Nasdaq bear market decline is FAANG stock Alphabet (GOOGL 0.55%) (GOOG 0.74%). This is the parent of well-known internet search engine Google, autonomous vehicle company Waymo, and streaming platform YouTube.
The primary reason shares of Alphabet have come under pressure has to do with ad weakness tied to the growing likelihood of a U.S. or global recession. Advertising tends to be among the first industries to weaken when an economic downturn arises, and is typically one of the first industries to bounce back when a new bull market emerges. Considering that bull markets last disproportionately longer than bear markets, it makes the current downturn in Alphabet shares an incredible buying opportunity.
Internet search engine Google should continue to be Alphabet's cash cow for the foreseeable future. Google accounts for more than 93% of global internet search engine market share, which makes it the go-to source for merchants wanting to target their message(s). More importantly, it means Alphabet should possess strong ad-pricing power more often than not.
Equally intriguing is seeing what Alphabet is doing with all of the cash flow being generated. Some of it is being directed to Google Cloud, which now accounts for 10% of worldwide cloud infrastructure spending. Cloud margins are usually leaps and bounds higher than ad margins, and enterprise cloud spending is still in its infancy. This makes Google Cloud an important operating segment for the second half of this decade.
Likewise, YouTube has become the second-most-visited social platform on the planet. With over 50 billion YouTube Shorts viewed daily, ad revenue should be pointing significantly higher over the long run.
Lovesac
A second awe-inspiring growth stock you'll be kicking for not buying during the Nasdaq bear market dip is furniture stock Lovesac (LOVE 1.77%). Despite the furniture industry being slow-growing and cyclical, Lovesac is challenging these expectations in a variety of ways.
Most furniture retailers buy their products wholesale from a small group of suppliers. Meanwhile, Lovesac's furniture is unique. Approximately 90% of net sales derive from "sactionals," which are modular couches buyers can rearrange dozens of ways to fit most living spaces. Sactionals come with an assortment of upgrade options, have over 200 different cover choices to ensure they'll match any color or theme of a room, and the yarn used in these products is made entirely from recycled plastic water bottles.
To build on this point, Lovesac's target audience tends to be a middle- to upper-income clientele. Consumers with higher incomes and net worth are less likely to alter their buying habits if and when a recession arrives. This distinction should allow Lovesac to weather economic downturns better than its peers.
Another key difference between Lovesac and traditional furniture retailers is its omnichannel sales platform. Whereas most furniture retailers are almost entirely reliant on foot traffic coming into brick-and-mortar stores, Lovesac is fully capable of pivoting to online sales, popup showrooms, and brand-name partnerships to move its products. This omnichannel approach has helped keep its inventory levels in check and reduced overhead expenses.
Image source: Getty Images.
Broadcom
The third amazing growth stock you'll regret not picking up during the Nasdaq bear market plunge is semiconductor giant Broadcom (AVGO 0.61%). Although chip stocks are highly cyclical, and therefore prone to weakness if a recession materializes, Broadcom is well positioned to navigate short-term turbulence.
The clearest catalyst working in Broadcom's favor is the 5G revolution. It took in the neighborhood of 10 years for telecom companies to upgrade wireless download speeds, which should lead to a healthy device replacement cycle. Broadcom generates a sizable percentage of its revenue from the wireless chips and accessories it manufactures for smartphones.
Additionally, Broadcom is a prime beneficiary of enterprise cloud migration and adoption. Broadcom supplies the access and connectivity chips used in data centers that are at the heart of cloud computing. As more businesses shift their data and/or presence into the cloud, Broadcom's organic growth rate from this ancillary segment can climb.
Something else to consider about Broadcom is that it tends to book a significant percentage of its orders in advance. It entered fiscal 2022 with close to $15 billion in its backlog. While CEO Hock Tan didn't divulge how much of a backlog Broadcom ended the year with, the company's backlog is typically large enough to sustain predictable operating cash flow during an economic downturn.
The cherry on top is that Broadcom has grown its quarterly dividend by more than 6,400% since 2010 and is currently doling out a nearly 3% yield.
NextEra Energy
A fourth phenomenal growth stock that's begging to be bought during the Nasdaq bear market drop is electric utility NextEra Energy (NEE 0.54%). Though electric utilities are almost always slow-growing businesses that investors seek out for their income potential, NextEra is expected to average 10% earnings growth over the next five years, according to Wall Street estimates. That makes it a growth stock among its peers.
What differentiates NextEra Energy from its peers is the company's clean-energy portfolio. Out of the 65 gigawatts (GW) of capacity NextEra currently has, 30 GW are coming from renewables. This includes 22 GW from wind and 5 GW from solar, which are both tops in the world. Even though investing in renewable energy has been pricey for the company, it's resulted in a substantial reduction in electricity generation costs and has boosted both the company's adjusted earnings growth and dividend growth rate.
Despite interest rates rising from historic lows, NextEra isn't anywhere close to finished building out its renewable-energy portfolio. Based on company estimates, anywhere from 33 GW to 42 GW of clean-energy projects will be built between the beginning of 2023 and the end of 2026. This should help NextEra sustain an adjusted earnings growth rate near 10% (give or take a bit in each direction), as well as stay ahead of any clean-energy legislation that may come out of Washington, D.C.
The remainder of NextEra Energy's capacity comes from its regulated utility. Regulated utilities are overseen by state public utility commissions. Although this means NextEra can't increase rates on its customers whenever it wants, it also ensures that the company isn't exposed to uncertain wholesale electricity or natural gas pricing. There's a high level of predictability and transparency to NextEra's future operating results, which is why it's such a smart buy.
The fifth amazing growth stock you'll regret not buying on the Nasdaq bear market dip is social media company Pinterest (PINS -0.52%). Despite struggling with many of the same advertising concerns that are affecting Alphabet, Pinterest has clear-cut competitive advantages in place that'll allow it to thrive.
There's no denying that an economic downturn can slow ad spending. However, Pinterest's key performance metrics have continually moved in the right direction over long periods. The company's monthly active user (MAU) count has steadily climbed when examined over many years.
Perhaps more importantly, Pinterest has managed to increase its average revenue per user (ARPU) no matter what the U.S. and global economy has thrown its way. In spite of last year's economic challenges, ARPU grew by 10% globally, which is a clear indication that advertisers are willing to pay a premium to get their message in front of Pinterest's 450 million MAUs.
Arguably the best aspect of Pinterest is its operating model. While most social media companies are reliant on likes or other data-tracking tools to help merchants target users with ads, Pinterest's entire premise is built on its users freely and willingly sharing what interests them. This data affords Pinterest substantial pricing power when dealing with advertisers.
If you need one more reason to trust in Pinterest, look at the company's balance sheet. It ended 2022 with $2.7 billion in cash, cash equivalents, and marketable securities. This treasure trove gave Pinterest's board the confidence to approve an up to $500 million share repurchase program.
