For the past 16 months, investors' resolve has been put to the test. After notching off what seemed like one new high after another in 2021, the ageless Dow Jones Industrial Average, broad-based S&P 500, and growth-centric Nasdaq Composite tumbled into a bear market last year.
Thankfully, tumult presents opportunity on Wall Street. We may never know when the broader market will decline or how steep that decline will ultimately be, but history has pretty clearly shown that every crash, correction, and bear market throughout history has eventually been wiped away by a bull market. When given enough time, the Dow, S&P 500, and Nasdaq have always rebounded.
Image source: Getty Images.
Considering that growth stocks were hit hardest by the 2022 bear market, they're an excellent place for patient investors to comb for bargains. The following three unstoppable growth stocks all have the tools and intangibles needed to turn an initial investment of $250,000 into $1 million by 2033.
Nio
The first phenomenal growth stock that has the macro and company-specific catalysts necessary to quadruple an initial investment of $250,000 is China-based electric-vehicle (EV) manufacturer Nio (NIO -1.89%).
While I believe Nio has a path to 300% (or greater) returns over the next decade, its ascent will be anything but a straight line. Building an auto company from the ground up to mass production is cost-intensive and not without its fair share of hiccups. Although Nio's production ramp has previously been constrained by supply chain issues tied to China's zero-COVID strategy, the future looks bright in many respects for this EV manufacturer.
On a macro basis, China has abandoned its zero-COVID mitigation strategy, which should allow the No. 2 global economy to ramp up its growth in the coming quarters. China is also the world's No. 1 auto market and is incented, along with other leading economies, to reduce its carbon footprint. This is what makes EVs such a no-brainer growth opportunity over the next decade.
With regard to company specifics, the Nio growth story is all about innovation. Nio has been introducing at least one new EV annually and has received a positive reaction to its releases.
Following the rollout of the ET7 and ET5 sedans last year, Nio quickly saw its sedans account for a majority of its deliveries on a monthly basis. The top-tier battery upgrade that can be purchased with the ET7 and ET5 offers nearly double the range of Tesla's flagship Model 3 sedan.
I'd like to add to the previous point that Nio tends to target middle- to upper-income consumers. People with higher incomes are less likely to alter their buying habits when economic disruptions occur. This should help the company weather future downturns better than many of its peers.
But there's also out-of-the-box innovation that can allow Nio to thrive. During the pandemic, it introduced its battery-as-a-service (BaaS) subscription. With BaaS, buyers receive a discount on the purchase price of their EVs, as well as the option of charging, swapping, or upgrading their batteries in the future. As for Nio, it lands high-margin, recurring subscription revenue and ensures that its early buyers remain loyal to the brand.
Lovesac
Unstoppable stocks come in all sizes. Small-cap furniture stock Lovesac (LOVE 1.22%) is the perfect example of a small-cap industry-changer that can turn a $250,000 investment into a cool $1 million over the next 10 years.
Trust me when I say the easiest way to put your friends to sleep is to mention the words "furniture stock." Furniture retailers tend to be highly cyclical, slow-growing companies that are heavily reliant on foot traffic in their brick-and-mortar stores. They also purchase their products from a relatively small group of wholesalers. Lovesac is breaking this boring mold in a variety of ways.
The first differentiator is Lovesac's furniture. Approximately 90% of net sales derive from sactionals -- modular couches that can be arranged in dozens of ways to accommodate virtually any living space. What's great about sactionals, aside from the functionality, is there are numerous upgrade options, such as wireless charging and surround sound, and over 200 different cover options, which ensures it'll match the color or theme of a buyers' home. Further, the yarn used in sactionals is made from recycled plastic water bottles, which makes its products eco-friendly.
Not to sound like a broken record, but another reason Lovesac is such a success is that it targets middle- to high-earning millennials. Whereas most furniture retailers struggle during economic downturns or when inflation rises significantly, Lovesac's consumer base is built to thrive in virtually any economic environment.
But the best thing about Lovesac might just be its omnichannel sales platform. While it does have a physical store presence in 40 U.S. states, Lovesac has been able to pivot a sizable percentage of its sales online. Additionally, it operates pop-up showrooms and has brand-name partnerships with the likes of Best Buy and Costco Wholesale. The key point is that Lovesac can control its overhead costs more effectively than its peers, which helped push it to recurring profitability well ahead of Wall Street's expectations.
With a sustained double-digit growth rate and a business model that's turning the stodgy furniture industry on its head, Lovesac looks like a good bet to quadruple investors' money in a decade.
Image source: Getty Images.
CrowdStrike Holdings
The third unstoppable growth stock that can turn $250,000 into $1 million by 2033 is none other than end-user cybersecurity stock CrowdStrike Holdings (CRWD 0.40%).
If there's a concern for CrowdStrike and its shareholders, it's probably a mix of the company's premium valuation (a multiple of 44 times fiscal 2025 earnings) and the growing expectation that the U.S. will dip into a recession. The Federal Reserve expects the U.S. to enter a "mild recession" later this year. Historically speaking, stocks don't perform well in the months following an official declaration of a recession.
But there's another side to the story that should have CrowdStrike's current and prospective shareholders excited.
To begin with, cybersecurity solutions have effectively become basic-necessity services for businesses of all sizes with an online/cloud-based presence. There's no such thing as a timeout for hackers or robots just because Wall Street or the U.S. economy hit a rough patch. Demand for cybersecurity solutions should be steady in any economic environment.
However, the real star for CrowdStrike is Falcon, its cloud-native security platform that oversees trillions of events each week. Falcon relies on artificial intelligence (AI) and machine learning to grow smarter and more effective over time. Being cloud-native allows Falcon to proactively spot and respond to potential threats more efficiently than on-premises solutions.
While almost every operating metric is moving in the right direction for CrowdStrike, two figures stand head and shoulders above the others. The first is its gross retention rate. It's no secret that CrowdStrike's software-as-a-service (SaaS) solutions aren't the cheapest. Nevertheless, the company's gross retention rate has jumped more than 400 basis points to 98% over the past six years. Customers are willingly paying more for a superior level of end-user protection.
The other telling figure is add-on sales. When CrowdStrike was still relatively young in fiscal 2017 (the company's fiscal year ends on Jan. 31), a single-digit percentage of its 450 clients had purchased at least four cloud-module subscriptions. By the end of fiscal 2023, 62% of its more than 23,000 clients had at least five cloud-module subscriptions, and 22% had purchased at least seven! Add-on sales will pump up CrowdStrike's adjusted subscription gross margin and allow its profit growth to outpace its already stellar sales growth.
