Although it can be an unpleasant realization or reminder for new and tenured investors, stock market corrections and bear markets are a normal part of the long-term investing cycle.
Last year, we witnessed all three major U.S. stock indexes plummet into a bear market, with the growth-oriented Nasdaq Composite (^IXIC 2.02%) taking the brunt of the pain. When the curtain closed on Dec. 31, the innovation-fueled index registered a 33% decline.
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But the funny thing about short-term pain on Wall Street is that it typically leads to long-term opportunity. Although the Nasdaq Composite has bounced well off of its 2022 bear market lows and, by one measure, entered a new bull market, it remains decisively below its record-closing high set in November 2021. In other words, bargains (especially among growth stocks) can still be found for investors willing to look for them.
What follows are four unrivaled growth stocks you'll regret not buying in the wake of the Nasdaq bear market dip.
Alphabet
The first incomparable growth stock that you'll be kicking yourself for not buying following the Nasdaq bear market swoon is Alphabet (GOOGL 10.22%) (GOOG 9.96%), the parent company of well-known internet search engine Google and streaming platform YouTube. Though Alphabet's ad-driven model has been challenged by heightened recessionary fears in recent quarters, it's a company with no shortage of competitive edges and innovations.
For example, Google accounted for nearly 93% of worldwide internet-search share in June, according to data from GlobalStats. In fact, Google hasn't tallied less than a 90% share of global search since sometime in the first quarter of 2015. Operating as a veritable monopoly in internet search is bound to lead to substantial ad-pricing power more often than not.
However, it's Alphabet's ancillary operations that could be its key source of cash-flow generation in the years to come. Based on Q1 estimates from tech-analysis firm Canalys, Google Cloud gobbled up a 9% global share of cloud infrastructure-service spending. More importantly, enterprise cloud spending is still in its infancy, and it generates substantially juicier margins than advertising. With Google Cloud producing its first quarterly profit in the March-ended quarter, the sky is the limit.
Meanwhile, YouTube is the second most-visited social site on the planet. In less than a year, daily visits for Shorts -- short-form videos that are typically less than 60 seconds -- surged from around 30 billion to north of 50 billion. That's a big-time opportunity for Alphabet to increase its ad revenue and generate high-margin subscription revenue.
Even after a sizable bounce, Alphabet is historically inexpensive relative to its cash flow. Whereas the company's Class A shares (GOOGL) have averaged a multiple of 18.2 times cash flow over the past five years, investors can jump in right now for less than 13 times forecast cash flow for 2024.
Lovesac
A second unrivaled growth stock you'll regret not scooping up after a sizable bear market decline in the Nasdaq Composite is furniture company Lovesac (LOVE -0.05%). Despite furniture being a generally slow-growing, cyclical industry, Lovesac is demonstrating that its products can grow in virtually any environment.
The first big differentiator for Lovesac is its furniture. Whereas most retailers order products from the same small group of wholesalers, Lovesac designs its furniture to be unique. Nearly 90% of net sales derive from sactionals -- modular couches that buyers can rearrange dozens of ways. Sactionals offer a multitude of upgrade options, including surround sound and wireless charging, and there are more than 200 different cover options for buyers to choose from.
Another key difference is Lovesac's eco-friendly approach to its products. The yarn used in sactionals is made entirely from recycled plastic water bottles. A typical sactional repurposes about 966 plastic bottles, according to the company. That's a big selling point with its core customer: middle-to-upper-income millennials.
Targeting a more affluent clientele is yet another way Lovesac is winning. Although the price tag attached to sactionals is notably higher than sectional couches found in most traditional furniture stores, consumers with higher incomes are less likely to alter their buying habits if inflation rises or a mild recession takes place. This has helped push the company's five-year compound annual sales growth rate to 31.5%.
Lovesac's omnichannel sales platform is also making waves. With the company emphasizing direct-to-consumer sales, popup showrooms, and various brand-name partnerships, its overhead expenses are meaningfully lower than traditional furniture retailers.
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Okta
A third unequaled growth stock you'll regret not adding to your portfolio following the Nasdaq bear market drop is cybersecurity stock Okta (OKTA -0.69%). Despite Okta's integration of Auth0 hitting some short-term snags, the puzzle pieces are in place for this company to thrive over the long run.
To start with, cybersecurity solutions have become a necessity for businesses with an online or cloud-based presence. Regardless of the performance of the U.S. economy, criminals aren't taking time off from trying to steal sensitive information. This steady demand for cybersecurity solutions, along with Okta's software-as-a-service (SaaS) subscription-driven operating model, should lead to highly predictable cash flow in any economic environment.
Okta's specialty is identity verification. The company's cloud-native platform relies on artificial intelligence (AI) and machine learning to become smarter and more efficient at recognizing and responding to threats over time. SaaS solutions are proving to be nimbler than on-premises solutions, which puts Okta at the center of what it estimates is an $80 billion addressable market for identity solutions.
Though the buyout of Auth0 resulted in a couple of quarters with larger-than-expected losses, this acquisition is critical for Okta's expansion. Not only does it widen the company's customer-identity ambitions, which Okta values as $30 billion of the aforementioned $80 billion addressable market in identity, but it also provides a path for Okta to expand well beyond the borders of the United States. International expansion is Okta's key to sustaining double-digit sales growth (potentially) throughout the decade.
With Okta's earnings-per-share expected to catapult from a modest loss in fiscal 2023 to more than $4 per share in profit by fiscal 2027, now is the time for opportunistic investors to pounce.
Baidu
The fourth unrivaled growth stock you'll regret not buying in the wake of the Nasdaq bear market dip is China-based internet search giant Baidu (BIDU 0.62%). Though China stocks come with their own unique set of risks, Baidu's domination, innovation, and valuation simply can't be ignored.
For more than three years, the biggest risk for China stocks was their nation's zero-COVID strategy. With regulators abandoning this COVID-19 mitigation policy last December, it's reopened China's economy and should, over time, remove supply chain constraints that weakened businesses and suppressed consumer buying activity. That's very good for Baidu and its peers.
In terms of dominance, Baidu sits relatively unchallenged in its home market. As of June 2022, it accounted for roughly 62% of all internet-search share in China. With few exceptions, Baidu's share of internet search in China has hovered between 60% and 87% over the trailing five-year period. This makes it the clear go-to for advertisers and puts the ball firmly in its court with regard to ad-pricing power.
Baidu is also thriving because of its innovation. Specifically, Baidu is riding the AI wave with its AI-driven cloud solutions and its industry-leading autonomous ride-hailing service, Apollo Go. The company's non-marketing revenue, which includes its AI-focused ancillary operations, has sustained a double-digit growth rate.
There's also Baidu's valuation, which makes a lot of sense for long-term investors. Despite Baidu regularly growing by a double-digit percentage, shares can be purchased for just 13 times forward-year earnings.
