Wall Street has been known to test the resolve of investors. Over the past two years, all three major indexes have catapulted to record-closing highs, plummeted into a bear market, and have now rallied more than 20% from their 2022 bear market lows. By at least one definition, this puts all three stock indexes firmly in a new bull market.
But the wildest ride of all has been taken by the growth-driven Nasdaq Composite (^IXIC 2.02%). After losing 33% of its value last year, the widely followed index has surged 30% in 2023, as of the closing bell on Aug. 15.
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In spite of this rally, the iconic Nasdaq remains a full 15% below its November 2021 all-time closing high. Whereas some folks might view this aggregate performance as disappointing, long-term investors see opportunity. Throughout history, every double-digit decline in the major stock indexes has represented a surefire buying opportunity. As long as the Nasdaq Composite sits markedly below its 2021 high, bargains can still be found -- especially with regard to growth stocks.
What follows are four superlative growth stocks you'll regret not buying in the wake of the Nasdaq bear market dip.
Mastercard
The first unrivaled growth stock you'll regret not adding to your portfolio following the Nasdaq bear market swoon is payment processor Mastercard (MA 0.07%). Although there are a number of data points and predictive tools that suggest an economic downturn is probable for the U.S. economy, Mastercard's competitive advantages are simply too prominent to ignore.
Earlier this week, I highlighted potentially ominous data from the banking industry that showed financial institutions are tightening their lending standards at a level consistent with previous recessions. Since Mastercard is a cyclical company, a U.S. recession would almost certainly reduce its revenue and profit potential as consumers pare back their spending.
But this is a short-term concern that overlooks a very clear long-term expansion for the U.S. economy. Recessions, while perfectly normal and inevitable, tend to be short lived. Meanwhile, economic expansions often last for years. Buying shares of Mastercard allows patient investors to play a numbers game that's very much working to their advantage.
Beyond just benefiting from the long-term expansion of the U.S. economy, Mastercard has ample opportunity to expand into underbanked regions of the world. Southeastern Asia, Africa, and the Middle East remain large underbanked, which provides a multidecade tailwind for Mastercard to expand organically or acquisitively into these faster-growing regions.
Further, Mastercard's management team has the company focused on payment facilitation. Though it would likely have no trouble entering the lending arena, doing so would expose it to potential loan losses and credit delinquencies. Since the company doesn't lend, it doesn't have to worry about setting aside capital for loan losses. This can be a powerful advantage during periods of economic instability.
JD.com
A second superlative growth stock you'll regret not scooping up following the Nasdaq bear market drop is China-based e-commerce company JD.com (JD 6.12%). While China's recent economic data has left a lot to be desired, JD.com is historically inexpensive and has a multitude of catalysts at its disposal.
JD is best known as China's second-largest online marketplace. But despite living in Alibaba's (BABA 0.59%) shadow, JD offers a well-defined competitive edge over its larger peer. Whereas Alibaba generates most of its revenue as a third-party middleman, JD.com primarily operates as a true direct-to-consumer (DTC) company.
In other words, it handles the inventory and logistics of getting purchased products to consumers. Operating as a true DTC player means more control over its expenses, and therefore the ability to really improve its operating margin over time.
However, JD is about more than just selling products online. A number of ancillary sales channels offer considerably higher growth prospects than e-commerce. This includes the company's Logistics division, as well as JD Health, a burgeoning online health platform in China.
Another potential value-creating catalyst for JD is the expected spinoff of its property and industrial subsidiaries. The announcement that it would spin off these two units came just days after Alibaba announced similar plans to spin off six companies and make its aggregate business easier to understand for investors.
But it's JD's valuation that's the feather in its cap. Wall Street's consensus has JD roughly doubling its earnings per share from a reported $2.57 in 2022 to nearly $5 per share in 2026. With JD.com already priced at a historically low forward earnings multiple of just over 10, now looks like the perfect time to pounce.
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Vertex Pharmaceuticals
The third unsurpassed growth stock you'll be kicking yourself for not buying with the Nasdaq Composite still well below its all-time high is biotech company Vertex Pharmaceuticals (VRTX -0.06%). Though there's some concentration risk with Vertex having the entirety of its current sales tied to one indication, the company's balance sheet, cash flow, and innovation make it a seemingly surefire buy.
The aforementioned indication where Vertex is making a difference is cystic fibrosis (CF). CF is a genetic disease characterized by thick mucus production that can obstruct a person's lungs and/or pancreas. Vertex has had four generations of CF therapies approved by the U.S. Food and Drug Administration (FDA).
This year, Vertex expects to generate between $9.7 billion and $9.8 billion in sales from its CF lineup, with most of this revenue coming from combination treatment Trikafta. The company is also currently working on a fifth-generation combination therapy. This ongoing innovation in the CF space all but ensures strong pricing power for Vertex, minimal pushback on list prices from insurers, and little threat from generics or biosimilars to the company's incredible cash flow.
However, Vertex isn't strictly confining itself to one area of focus. Recently, the FDA accepted the Biologics Licensing Application for exagamglogene autotemcel, better known as exa-cel. This gene-editing therapy, which was developed in collaboration with CRISPR Therapeutics, has FDA decision dates of Dec. 8, 2023, for severe sickle cell disease, and March 30, 2024, for transfusion-dependent beta thalassemia. If approved, exa-cel is expected to achieve at least $1 billion in peak annual sales.
Vertex is also swimming in cash. The exceptionally high margins associated with brand-name therapeutics allowed it to grow its cash, cash equivalents, and marketable securities balance to $11.2 billion during the June-ended quarter. In addition to its board green-lighting an up to $3 billion share buyback program earlier this year, this cash gives Vertex plenty of flexibility to conduct novel research, forge collaborations, and potentially make acquisitions.
Meta Platforms
The fourth superlative growth stock you'll regret not buying in the wake of the Nasdaq bear market dip is none other than social media stock Meta Platforms (META 0.43%). Even though Meta has more than doubled year to date, its unwavering competitive advantages and valuation make it a compelling buy for long-term investors.
The biggest challenge over the past year and change for Meta has been the state of the advertising industry. The expectation of a U.S. recession coerced advertisers to pare back their spending, beginning early last year. Meta generates more than 98% of its revenue from advertising, which means even the threat of an economic downturn can really weigh on its operating performance -- at least in the short run.
But just like Mastercard, Meta Platforms' shareholders are playing a long-term numbers game that favors optimism. Since the end of World War II, all 12 U.S. recessions have lasted just two to 18 months. Comparatively, most economic expansions have been measured in multiple years, if not a full decade. In short, the ad industry is going to be spending considerably more time expanding than navigating choppy waters.
What makes Meta special is the company's prime social media real estate. It owns Facebook, the top social media site in the world, along with Instagram, WhatsApp, and Facebook Messenger. Collectively, the company's family of apps attracted 3.88 billion monthly active users in the June-ended quarter. Advertisers are well aware that they aren't going to reach a broader audience, which is what gives Meta such phenomenal ad-pricing power.
Although CEO Mark Zuckerberg has received criticism for his company's aggressive spending on the metaverse, Meta has the luxury of taking these risks. It closed out the first half of 2023 with $35.1 billion in net cash, cash equivalents, and marketable securities. Meta has also generated $31.3 billion in net cash from its operating activities through the first six months of the year.
Despite Meta Platforms' massive run-up this year, it's still only valued at roughly 10 times Wall Street's consensus cash flow in 2024. For context, Meta has traded at a multiple of nearly 16 times its year-end cash flow over the past five years. All this means it remains a screaming bargain for patient investors.
