The U.S. equity market had a tough time in August 2023. The benchmark S&P 500 index fell by 1.8%, while the tech-heavy Nasdaq Composite dropped by around 2%.

Investors now seem to be concerned about the rising bond yields and slowing economic growth in China and Europe. The Bureau of Economic Analysis also revised second-quarter U.S. gross domestic product (GDP) to an annualized rate of 2.1%, down from the previous estimate of 2.4%.

However, a few analysts believe that this may prove to be an opportune time for retail investors to pick up high-quality stocks. To create wealth, long-term investors should consider picking up small positions in high-quality growth stocks that are riding secular tailwinds.

Here's why The Trade Desk (TTD 1.89%) and Pinterest (PINS 1.22%) fit the bill.

The Trade Desk

Shares of leading buy-side programmatic advertising platform provider The Trade Desk were up more than 100% in July. However, the stock tanked by nearly 10% after the company released its second-quarter results (period ending June 30, 2023) on Aug. 9. The stock's reaction was quite surprising, considering that the company has surpassed both revenue and earnings consensus estimates and has given solid guidance for the third quarter.

The Trade Desk's self-service, cloud-based platform and advanced analytics system are playing pivotal roles in improving targeted digital advertising. The company strategically bids for advertisement space across a variety of online channels such as video, mobile, desktop, and connected television (CTV) to ensure that advertisements have the maximum impact on viewers, as well as a healthy return on investment for the advertisers. CTV advertising has emerged as a major growth driver for the company.

Unlike walled gardens such as Meta Platforms and Alphabet, The Trade Desk does not own content or advertising inventory. So since it doesn't have any conflict of interest that would lead it to steer clients to its own ad inventory or charge exorbitantly, The Trade Desk is seen as a transparent and objective intermediary in the programmatic advertising space. The company's Unified ID 2.0 (UID2) technology (tracking users by their email addresses, in an anonymized way), introduced as an alternative to third-party cookies for targeted advertising, is also gaining traction.

For the past five years, The Trade Desk has been using the Koa artificial intelligence (AI) system to analyze performance data of advertisements across the internet and make recommendations to optimize spending and improve outcomes. In June 2023 the company launched a media-buying platform called Kokai, which leverages AI, partner integrations, and user experiences to further optimize advertising campaigns.

In the second quarter, The Trade Desk's revenue rose by 23% year-over-year to $464 million. The company also reported a GAAP profit of $0.07 per share, a dramatic improvement from the $0.04 loss per share in the same quarter of the prior year. The company has projected revenue of "at least $485 million" for the third quarter, implying a healthy year-over-year growth of 23%.

CEO Jeff Green's staggering $370 million compensation paid in stock options since 2022 has had a negative impact on the company's bottom line. The company is also trading at 22.6 times trailing 12-month sales, significantly higher than the software industry median valuation of 2.4x.

Despite these worries, The Trade Desk seems positioned for a bright future, considering that the global programmatic advertisement market is estimated to grow from $493.2 billion in 2022 to $724.8 billion in 2026. With the company being a leader in this space, increasing adoption of CTV and rising focus on privacy-focused technologies could help the stock go much higher in the coming months.

Pinterest

Shares of image-based social media platform Pinterest slumped from highs of around $89 in February 2021 to below $18 levels in July 2022, mainly as people spent less time online post-lockdowns. However, the situation has improved in 2023, and the stock gained nearly 12% so far this year.

Pinterest is now showing signs of bouncing back, although there has been a slight sell-off following its second-quarter earnings release (for the period ending June 30, 2023) on August 1. In the second quarter, Pinterest recorded an 8% year-over-year increase in monthly active users (MAUs) to 465 million. Revenue was $708 million, up 6% on a year-over-year basis, while the net loss was $35 million. However, had it not been for the hefty stock-based compensation, the company would have reported a net income of $143 million in the second quarter, highlighting the health of the core business.

Besides personalized and targeted advertising, which has been the company's main revenue source, Pinterest has also been increasingly focusing on e-commerce. The company has also been working to bring relevant shoppable content, which allows users to purchase directly through the platform. Since 61% of users claim to visit the platform while starting a new project and users have a penchant to pin items that reflect their interests, their buying intent is already high. The company has partnered with Amazon and aims to make every pin shoppable. Further, the collaboration will also allow Amazon to post third-party ads on the Pinterest platform -- a move that could boost ad inventory and lead to better ad pricing (according to RBC Capital Markets analyst Brad Erickson).

Pinterest is currently trading at 6.4 times its trailing 12-month sales, significantly lower than its median valuation of 9.4. The Amazon Ads collaboration coupled with the e-commerce opportunity could prove highly lucrative for the company. Investors, however, are advised to maintain a cautious optimism for the company and gradually build a position in the stock using a dollar-cost averaging strategy.