Over the long run, the stock market is a wealth-building machine that's outperformed bonds, gold, oil, and housing on an annualized basis. But over shorter periods, Wall Street can take investors on a wild ride.
Since the summer of 2021, the three major indexes have ascended to new closing highs, as well as stumbled into a bear market. The growth-driven Nasdaq Composite (^IXIC 2.02%) has had what's arguably the wildest ride of all. It shed 33% of its value in 2022 and has come roaring back with a 36% year-to-date gain through July 17, 2023.
Image source: Getty Images.
However, this widely followed index still sits around 2,000 points below its all-time intra-day high set in November 2021. In other words, bargains can still be found for opportunistic investors willing to put in the work to seek them out.
What follows are four incomparable growth stocks you'll regret not buying in the wake of the Nasdaq bear market dip.
Visa
The first unique growth stock that's begging to be bought in the shadow of the Nasdaq bear market is industry-leading payment processor Visa (V -0.23%). Although Visa is cyclical and would, therefore, struggle with lower consumer and enterprise spending if the U.S. were to fall into a recession, there are far too many competitive advantages for investors to ignore.
Let's first address the biggest concern facing Visa: the potential for a U.S. recession. While recessions are a normal and inevitable part of the long-term economic cycle, they're also short-lived. All 12 recessions since the end of World War II have lasted just two to 18 months. Comparatively, most periods of economic expansion have gone on for years. It's easy for a payment processor like Visa to grow when it's spending far more time in the sun than under murky skies.
Size is another key edge for Visa. In 2021, it claimed a 52.6% share of U.S. credit card network purchase volume, among the four major payment processors. That's about 29 percentage points higher than its next-closest competitor -- and this gap has grown meaningfully since the end of the Great Recession. Domestically, Visa is cleaning up.
But there's an even more intriguing growth story beyond the borders of the United States. Many of the world's fastest-growing economies and regions remain underbanked, including Southeastern Asia, the Middle East, and Africa. Not surprisingly, some of Visa's strongest growth can be found in cross-border transactions, which registered a 32% increase in currency-neutral cross-border volume, excluding intra-European transactions, in Visa's fiscal second quarter (ended March 31, 2023).
Despite its shares being near an all-time high, Visa's forward price-to-earnings ratio of 25 is near a decade low.
JD.com
A second incomparable growth stock you'll regret not scooping up in the wake of the Nasdaq bear market swoon is China-based e-commerce stock JD.com (JD 6.12%). While China stocks contend with a unique basket of headwinds, the risk-versus-reward for JD.com is very much tilted in favor of optimists at the moment.
The top hurdle for China stocks has been the COVID-19 pandemic. Chinese regulators imposed strict mitigation measures (known as "zero-COVID") to contain the spread of the SARS-CoV-2 virus that causes COVID-19, leading to supply chain issues and lower consumer spending across a variety of sectors and industries.
The seemingly good news for China is that regulators abandoned the controversial zero-COVID mitigation approach this past December. While China's reopening has been a bit bumpier than expected, and it'll take time for its residents to build up some level of immunity to the SARS-CoV-2 virus, a reopened economy bodes well for the nation's No. 2 e-commerce player, JD.com.
Despite playing second fiddle to Alibaba (BABA 0.59%), China's largest online retailer, JD.com is the company that's better positioned to grow its operating margin and bottom line. Whereas Alibaba's online marketplace primarily relies on third-party retailers, JD.com operates a direct-to-consumer model. It directly oversees its inventory and operates the logistics networks responsible for getting products to consumers. This gives JD.com more power to adjust its overhead expenses.
Furthermore, JD.com followed in Alibaba's footsteps in late March and announced plans to spin off two of its units (property and industrial). Spin-offs allow for cleaner earnings comparisons and can unlock value for shareholders.
At just 11 times forward-year earnings, JD.com is historically inexpensive.
Image source: Pinterest.
The third one-of-a-kind growth stock you'll regret not adding to your portfolio following the Nasdaq's bear market drop is social media company Pinterest (PINS 4.04%). Even though the advertising environment has been challenging for more than a year, Pinterest has well-defined catalysts that should lead to long-term, double-digit earnings growth.
Similar to Visa, Pinterest is a company that benefits from disproportionately long periods of economic expansion. Recessions and downturns may be inevitable, but Pinterest is going to possess strong ad-pricing power more often than not.
However, the real key to Pinterest's success has been its ability to monetize its user base. Even with advertisers paring back their spending in 2022, Pinterest delivered global average revenue per user (ARPU) growth of 10%. With 463 million global monthly active users (MAUs) as of March 31, 2023, and this figure somewhat steadily expanding, when examined over five years, advertisers have demonstrated a willingness to pay a premium to get their message(s) in front of the company's MAUs.
To add to the above, Pinterest's platform is well protected from the data-tracking changes implemented by app developers. While most social media platforms rely on likes and other data-tracking tools to help advertisers target users, the entire premise of Pinterest's social site is for users to freely and willingly share the things, services, and places that interest them. This is vital information the company can present to advertisers that, in turn, boosts its ad-pricing power.
Pinterest's earnings per share is expected to more than double by mid-decade, which is what makes it a no-brainer buy right now.
CrowdStrike Holdings
The fourth incomparable growth stock you'll regret not buying in the wake of the Nasdaq bear market dip is cybersecurity company CrowdStrike Holdings (CRWD 2.03%). Though CrowdStrike trades at a seemingly high price-to-earnings ratio, a deeper dive suggests this end-user cybersecurity provider is worth every penny -- and potentially much more.
One factor working in CrowdStrike's favor is that cybersecurity solutions have evolved into necessity services for businesses of all sizes since the beginning of the century. Hackers have become more sophisticated, and they don't take time off just because Wall Street or the U.S. economy is struggling. Businesses with a growing online or cloud presence must protect their data, which leads to highly predictable quarterly/annual cash flow for CrowdStrike.
But what allows CrowdStrike to stand apart from its peers is Falcon, the company's cloud-native, artificial intelligence (AI)-driven cybersecurity platform. As a cloud-based software-as-a-service (SaaS) solution, Falcon is growing smarter by the day and overseeing trillions of events each week. Thanks to its machine learning capabilities, Falcon is nimbler than on-premises security solutions when it comes to recognizing and responding to threats.
One reason CrowdStrike's forward-year earnings multiple of 50 is more reasonable than you might otherwise think is its ability to grow add-on sales. As of the April-ended quarter (the company's fiscal first quarter of 2024), 62% of the company's more than 23,000 customers had purchased five or more cloud-module subscriptions. That compares to a single-digit percentage of its clients that had purchased four or more cloud-module subscriptions in fiscal 2017. These add-on sales are critical to lifting its adjusted subscription gross margin to nearly 80%.
CrowdStrike's customers are also sticking with the company like never before. Its gross retention of 98% is more than four percentage points higher than where things stood six years ago.
