The S&P 500 and Nasdaq Composite are up 11% and 27%, respectively, since the beginning of this year as value-seeking investors started nibbling on some stocks that got crushed by rising interest rates, inflation, and other macro headwinds. But the bear market isn't over yet, and investors should be aware that another crash could easily occur if inflation heats up again and the macro environment worsens.
But instead of waiting for the other shoe to drop, investors should make a list of the growth stocks they want to buy if a market crash compresses their valuations. These three stocks are on my shopping list -- Palo Alto Networks (PANW 1.37%), ServiceNow (NOW -0.69%), and Celsius Holdings (CELH -1.41%) -- and they should be on your radar as well.
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1. Palo Alto Networks
Palo Alto Networks, one of the world's largest cybersecurity companies, serves nearly all of the Fortune 100 companies and most of the Global 2000 companies. Between fiscal 2012 and fiscal 2022 (which ended last July), its annual revenue grew at a compound annual growth rate (CAGR) of 36%, while its adjusted net income rose at a CAGR of 50%. Its stock is up 1,320% over the past 10 years.
Palo Alto's gains throughout that decade were initially driven by the growth of its next-gen firewall Strata, which upgrades traditional firewalls with network monitoring services. But it subsequently launched two other ecosystems -- Cortex for AI-powered threat detection services and Prisma for cloud-native cybersecurity services -- that offset Strata's slowing growth, diversified its business, and widened its moat against newer cybersecurity companies.
Cortex and Prisma, which Palo Alto collectively calls its next-generation security (NGS) services, accounted for 40% of its trailing 12-month revenue and currently drive most of its growth. For fiscal 2023, it expects its revenue to rise 25%-28%, its billings to grow 23%-24%, and its adjusted EPS to jump 69%-70%. It's also stayed profitable on a generally accepted accounting principles (GAAP) basis over the past four quarters. Palo Alto is already reasonably valued relative to that growth at 45 times forward earnings, but it could certainly get cheaper -- and a lot more appealing -- during a market downturn.
2. ServiceNow
ServiceNow's cloud-based platform enables companies to streamline their unstructured work patterns into automated workflows. That approach can help its clients reduce their operating expenses, expand more efficiently, and support its hybrid and remote workers. It served more than 7,700 customers at the end of 2022, including 85% of the Fortune 500.
Between 2012 and 2022, its annual revenues grew at a CAGR of 41%. Its stock price is up 1,390% over the past 10 years. It wasn't profitable by GAAP or non-GAAP measures back in 2012, but it's now consistently profitable by both metrics.
ServiceNow's robust growth is driven by two main catalysts. First, it established an early mover's advantage in the niche market for cloud-based digital workflow services. Second, it profited from the digital transformations of large businesses -- which become even more essential during economic downturns as they rein in their spending and optimize their operations.
The company expects to generate more than $16 billion in revenue in 2026 -- which implies its top line will continue to grow at a CAGR of at least 21% from 2022 to 2026 -- as more companies undergo digital transformations. Its stock might not seem like a bargain right now at 58 times forward earnings, but I believe any market-induced pullback in this evergreen stock would represent a golden buying opportunity for long-term investors.
3. Celsius
Celsius sells sugar-free energy drinks made from natural ingredients like green tea, ginger, and amino acids. It believes it can disrupt larger energy drink makers like Red Bull and Monster Beverage with its healthier drinks.
Health-conscious consumers have certainly been paying attention. Between 2017 and 2022, its revenue grew at a jaw-dropping CAGR of 78%. Analysts expect its revenue to rise 68% in 2023 and grow 34% to $1.5 billion in 2024.
Celsius booked a net loss in 2022 as it paid a one-time termination fee to part ways with its U.S. distribution partner. But it ended that deal to sign a much larger domestic distribution deal with PepsiCo. PepsiCo also invested $550 million in Celsius as part of that deal, and that partnership could eventually be expanded into overseas markets.
Analysts expect Celsius to return to profitability in fiscal 2023 with a net profit of $115 million as it laps its distribution termination fees. Celsius' stock already skyrocketed 2,840% over the past five years, and it certainly doesn't look cheap at more than 130 times forward earnings and 10 times this year's sales. But if it gets cut in half during a market sell-off, its valuations could look a lot more compelling for patient investors.
