Volatility is a given when investing on Wall Street. Since the start of 2020, investors have navigated their way through two very different bear markets and enjoyed a period of virtually uninhibited exuberance. For the growth-driven Nasdaq Composite (^IXIC 0.59%), this volatility translated into a period of record highs in 2021, followed by a drawdown of up to 38% in 2022.
Although the Nasdaq Composite has rallied strongly from its 2022 bear market low, it's still roughly 15% below its November 2021 closing high. While some investors might view its recent performance as disappointing, history shows that this decline represents a surefire buying opportunity. Every notable decline in the major stock indexes (including the Nasdaq) has eventually been put into the rearview mirror by a bull market -- and the 2022 bear market will be no different.
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It's an especially intriguing time to consider buying growth stocks. Though growth-focused companies were pummeled during the 2022 bear market, many still offer bright long-term outlooks.
What follows are four premier growth stocks you'll regret not buying in the wake of the Nasdaq bear market dip.
Alphabet
The first top-tier growth stock that you'll regret not buying following the Nasdaq bear market swoon is Alphabet (GOOGL 1.54%)(GOOG 1.47%), parent company of internet search engine Google and streaming platform YouTube, among other businesses.
The biggest challenge for Alphabet right now is navigating an uncertain economic environment. The company generates most of its revenue from advertising, and businesses are usually quick to reduce their marketing budgets during periods of economic uncertainty. While this is a tangible concern for Alphabet, it completely ignores the company's overwhelming long-term competitive advantages.
NASDAQ: GOOGL
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For example, internet search engine Google closed out July with a little over 92% of worldwide search share. Google has accounted for at least 90% of search share every month looking back more than eight years. It's grown into a virtual monopoly in the internet search space, which should provide parent Alphabet with an abundance of operating cash flow.
However, it's Alphabet's other fast-growing initiatives that should have investors excited about the future. Google Cloud is the world's No. 3 provider of cloud infrastructure services and has delivered back-to-back quarters of operating income after years of losses. As for YouTube, the average daily view count of Shorts has been climbing at a breakneck pace since these short-form videos were introduced two years ago. This looks like a path to substantial ad-pricing power moving forward.
Lastly, Alphabet is still historically inexpensive. Over the past five years, shares of the company have traded at an average multiple of 18 times cash flow. Investors can buy in right now for 14 times Wall Street's forecast cash flow for 2024.
NASDAQ: LOVE
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Lovesac
A second premier growth stock that you'll be kicking yourself for not buying following the Nasdaq bear market drop is furniture company Lovesac (LOVE 2.97%).
The furniture industry is typically slow growing, highly cyclical, and heavily reliant on foot traffic into brick-and-mortar stores. In other words, it's not something you'd normally consider getting excited about as an investor when the outlook for the U.S. economy is uncertain. However, Lovesac is attempting to change the game in the furniture arena, and looks to be having plenty of success doing so.
A furniture company can't be special unless its products are unique -- and Lovesac certainly checks that box. Nearly 90% of its net sales derive from "sactionals," modular couches that can be rearranged to fit most living spaces. Sactionals have more than 200 different cover options, can be upgraded an assortment of ways (think wireless charging docks and surround-sound systems), and the yarn used in their production is made entirely from recycled plastic water bottles. It's an ecofriendly product that offers an abundance of options and promotes functionality.
Lovesac's omnichannel sales platform looks like a winner, too. While the company does have a physical retail presence in most U.S. states, it relies on pop-up showrooms, brand-name partnerships (e.g., Best Buy and Costco Wholesale), and direct-to-consumer channels to increase its sales. This approach has resulted in lower overhead expenses and a higher operating margin than its peers.
Lovesac also targets more affluent consumers with its products. Higher earners are less likely to alter their spending habits in the event of an economic slowdown or downturn.
At roughly 8 times forward-year earnings (based on Wall Street's consensus), Lovesac looks like an exceptional value.
Image source: Getty Images.
Nio
A third standout growth stock you'll regret not scooping up with the Nasdaq still well below its record-closing high is China-based electric-vehicle (EV) manufacturer Nio (NIO 3.45%).
Like most EV producers, Nio is currently in the process of ramping up production. This means it's losing money and burning through some of its cash on hand as it attempts to make a name for itself in China, the world's No. 1 auto market, as well as expand internationally. While it could be a couple of years before Nio achieves recurring profitability, the company has shown immense promise in its early years.
Although monthly production figures were stuck in neutral for the first half of the year, July provided a knock-your-socks-off figure for investors. It marked the first month Nio had surpassed 20,000 deliveries (20,462, to be exact). Management had always hinted that supply chain issues tied to COVID-19 were its primary hindrance. With China ending its stringent COVID-19 mitigation measures in December, Nio looks to have a clear path to ramp up production.
In addition to rapidly rising production, innovation is in the driver's seat for Nio. The company's all-new NT 2.0 platform marked a major improvement in the advanced driver assistance systems used in the company's EVs. The newly launched ES6 SUV, which features NT 2.0, saw deliveries exceed 10,000 just in the month of July. It looks as if Nio's delivery slowdown had everything to do with buyers waiting for the company's newest upgrades, not competitive challenges.
Despite having $5.5 billion in cash, cash equivalents, and short/long-term investments on hand, management is also being mindful of the company's spending. It recently ended the company's free battery-swapping program with new vehicle purchases in favor of an option that would allow buyers to keep this service for a one-time fee. This move should help push Nio toward recurring profitability a little faster.
NASDAQ: BIDU
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Baidu
The fourth premier growth stock you'll regret not buying in the wake of the Nasdaq bear market dip is tech stock Baidu (BIDU 3.34%). That's right, another China-based company.
If there's a knock against Baidu, it's that recent economic data out of China has signaled a slowdown in the world's No. 2 economy. Baidu is a cyclical company highly dependent on Chinese businesses to thrive. If China fails to reignite its growth engine, it could mean weaker-than-anticipated sales and profit growth in the short run.
But just like Alphabet, Baidu has well-defined competitive advantages that should allow it to navigate potentially choppy waters in its home market with relative ease. For instance, Baidu is China's leading internet search provider. Data from GlobalStats puts the company's share in China at 59.2% in July. With such an overwhelming lead over Microsoft's Bing (16.9% share), Baidu shouldn't have any trouble commanding exceptional ad-pricing power in its home market.
An even more exciting growth opportunity can be seen with Baidu's nononline marketing operations. This includes the company's artificial intelligence (AI)-driven business segment, such as AI Cloud, and Apollo Go, an autonomous ride-hailing service. The second quarter saw nononline marketing revenue rise 12%. Double-digit growth from AI solutions should be the expectation moving forward.
Despite bouncing strongly off of its fourth-quarter low last year, Baidu is still a phenomenal value. Shares can be purchased for 12 times Wall Street's consensus earnings in 2024, quite the deal for a company that's regularly grown by a double-digit percentage. Even factoring in the added risks associated with owning stocks based in China, Baidu is cheap.
