As 2022 reminded investors, stocks can go down just as easily as they can rise in value. Last year, all three major U.S. stock indexes tumbled into a bear market, with the growth-centric Nasdaq Composite (^IXIC -0.64%) enduring the brunt of the pain (a 33% loss).
Although bear markets can be scary and somewhat unnerving, especially for new investors, they're a normal part of the long-term investing cycle. More importantly, they represent an opportunity to snag high-quality stocks at a discount. Don't forget, every previous correction and bear market in the Nasdaq Composite (and other indexes for that matter) have eventually been cleared away by a bull market. Being an optimist continually pays on Wall Street.
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It's a particularly good time to go shopping for innovative growth stocks, many of which were taken to the woodshed last year. What follows are four glorious growth stocks you'll regret not buying during the Nasdaq bear market dip.
Nio
The first magnificent growth stock that you'll wish you scooped up during the Nasdaq bear market decline is China-based electric vehicle (EV) manufacturer Nio (NIO -0.48%). Although Nio has dealt with a number of production ramp issues, many of the company's headwinds are beginning to melt away.
One of the clearest catalysts for Nio is China ending its controversial zero-COVID mitigation strategy this past December. For years, regulators imposed stringent lockdowns and crippled supply chains in an effort to halt the spread of COVID-19. With this zero-COVID strategy now gone, Nio should have fewer supply chain constraints and be able to steadily ramp its output in the coming quarters.
However, the Nio growth story is really about innovation. Nio has been introducing or upgrading at least one new EV annually for years. At the moment, its ET7 and ET5 sedans, which hit showrooms last year, account for the bulk of its deliveries. The interesting thing about the ET7 and ET5 is they offer long-range capacity, with the top battery pack option, which nearly doubles the range of Tesla's flagship sedan, the Model 3.
Nio will also be relaunching its mid-sized SUV, the ES6, with its newer NT 2.0 platform this month. Aside from modest aesthetic and internal redesigns, NT 2.0 provides a noticeable improvement in advanced drive-assistance systems and overall data processing that builds on the push toward autonomous driving.
Furthermore, Nio is a pioneer for its out-of-the-box innovation. In August 2020, it introduced its battery-as-a-service (BaaS) subscription, which allows its EV buyers to charge, swap, and upgrade their batteries, as well as discounts the purchase price of their vehicle. In exchange for near-term lost sales, Nio is netting high-margin, long-term subscription revenue and securing the loyalty of its early buyers.
PubMatic
A second glorious growth stock you'll regret not buying during this sizable Nasdaq drop is adtech stock PubMatic (PUBM -2.27%). Despite advertising stocks performing poorly when recessionary winds start blowing, both macro and company-specific factors are working in PubMatic's favor.
Ad-driven stocks always seem to get put through the ringer anytime there's the possibility of an economic downturn. However, the U.S. economy spends a disproportionate amount of time expanding, relative to contracting. Not only is PubMatic going to enjoy more time in the proverbial sun, but it's focused on the fastest-growing niche within the advertising space: digital ads.
PubMatic is a sell-side platform (SSP), which means it uses its cloud-based programmatic ad platform to help publishing companies sell their digital display space. Considering the amount of consolidation that's occurred in the SSP space, it's one of the few remaining companies left on the sell side that publishers can turn to. Not surprisingly, PubMatic's share of the sell-side programmatic ad space has grown to between 4% and 4.5%.
But even within the digital ad arena, PubMatic is outpacing its peers in the growth department. That's because it's focusing on the highest growth opportunities in omnichannel video, which encompasses video and connected TV (CTV) programmatic ads. Growth in video and CTV can easily propel PubMatic's top-line sales growth above the industry average.
Best of all, PubMatic chose to design and build out its cloud-based infrastructure. Not having to rely on a third-party means it's going to keep more of its revenue as its business scales. With $173.2 million in cash and no debt, the sky's the limit.
Image source: Getty Images.
Airbnb
A third phenomenal growth stock you'll regret not buying hand over fist during the Nasdaq bear market tumble is hosting-and-travel company Airbnb (ABNB 0.10%). Despite its shares being valued at a premium during a bear market, all facets of Airbnb's business have shown it's well worth the price for patient investors.
Similar to Nio, one of the most front-and-center catalysts for Airbnb is putting the COVID-19 pandemic on the backburner. With most countries eliminating or substantially reducing COVID-19 mitigation measures, demand for stays and experiences has surged. Airbnb recognized over 121 million nights and experiences booked in the first quarter, which equates to an annual run rate of nearly 485 million. Even with the pandemic disrupting its operating model, Airbnb is on pace to potentially double nights and experiences booked since 2018 by the end of this year.
More importantly, long-term stays (28 nights or longer) are one of the company's fastest-growing categories. While some workers have returned to the office, more people than ever are choosing to work remotely following the worst of the pandemic. Workers who aren't tethered to any particular location are finding value in Airbnb's platform, which allows them to set up shop wherever they desire.
The thing to remember about Airbnb is that it's still a relatively young, fast-growing company. It has more than four million worldwide hosts, which represents just a fraction of the properties that could be of interest on Airbnb's short-term rental marketplace. Growing its host marketplace, as well as updating this marketplace to make it more user-friendly for owners and renters should help Airbnb sustain an annual growth rate near 20%.
Lastly, Airbnb has hardly scratched the surface when it comes to its Experiences segment. Though it's worked with local experts to take travelers on adventures, the lure of forging partnerships with airlines and restaurants to secure a bigger piece of the trillions of dollars spent annually on travel will likely prove too great to resist.
Visa
The fourth glorious growth stock you'll regret not buying on the Nasdaq bear market dip is none other than payment-processing giant Visa (V 0.05%). Despite being cyclical, Visa's competitive advantages make it a rock-solid buy on any decline.
The biggest headwind with Visa is the expectation the U.S. economy will fall into a recession. Even the Federal Reserve has begun modeling a mild recession into its forecast for later this year. But this is a two-sided coin that allows Visa to benefit much in the way PubMatic thrives. Since periods of expansion last considerably longer than recessions, Visa tends to grow in lockstep with the U.S. economy over the long term.
One reason Visa is able to set itself apart from its competitors is its mammoth market-share lead in the U.S., the world's top market for consumption. In 2021, Visa accounted for 52.6% of credit card network-purchase volume in the U.S., which was about 29 percentage points more than its closest competitor. Since the Great Recession, Visa has been the only major payment processor to substantially increase its share in the United States.
Visa's runway outside the U.S. is also vast. Cash is still being used for a sizable percentage of global transactions. This represents an opportunity for Visa to organically push its payment infrastructure into underbanked regions like Africa, the Middle East, or Southeastern Asia, or acquire its way into lucrative regions, which it did with the Visa Europe acquisition in 2016.
To round things out, Visa's management team has kept the company strictly focused on payment facilitation. Although lending would generate net-interest income and additional fees for Visa, it would also expose the company to potential delinquencies and loan losses during recessions. Staying conservative means Visa can bounce back from downturns quicker than other financial stocks.
