It's incredible what a difference a year can make on Wall Street. In 2022, all three major stock indexes were fully mired in a bear market, with the growth-focused Nasdaq Composite (^IXIC 2.02%) hit hardest. By year's end, the Nasdaq had shed a third of its value.
Meanwhile, this year has been a completely different story. On a year-to-date basis, as of the closing bell on Sept. 6, the Nasdaq Composite is higher by nearly 33%. However, it still sits close to 14% below its record-closing high, which was set in November 2021.
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Some might view a double-digit decline in one of Wall Street's leading stock indexes with disappointment. But for long-term-minded investors, a 14% decline from the Nasdaq Composite's all-time high just means bargains can still be found among growth stocks.
What follows are four top-tier growth stocks you'll regret not buying in the wake of the Nasdaq bear market dip.
Amazon
The first unrivaled growth stock that's begging to be bought with the Nasdaq Composite bouncing back from the 2022 bear market is e-commerce leader Amazon (AMZN 3.43%). Although Amazon's leading revenue segment (its online marketplace) could contend with slow or shrinking sales if the U.S. economy dips into a recession, all signs point to Amazon's core drivers of operating cash flow continuing to fire on all cylinders.
Despite accounting for roughly 40% of U.S. online retail sales in 2022, it's Amazon Web Services (AWS), advertising services, and subscription services that do virtually all the heavy lifting for Amazon.
AWS is the world's leading cloud infrastructure service provider and should benefit immensely from enterprise cloud spending throughout the decade (if not well beyond). Even though AWS accounts for just a sixth of Amazon's net sales, it's often responsible for 50% to 100% of its operating income. The margins associated with cloud services are far and away better than online retail sales.
Amazon is also one of the most-visited social sites globally. It consistently attracts more than 2 billion visitors each month, which makes it a no-brainer site for merchants to advertise on. In spite of a generally weak market for advertising, the company's ad services segment has sustained a sales growth rate of greater than 20%.
Investors are getting plenty of value with Amazon, too. Though Amazon may look pricey based on the traditional price-to-earnings (P/E) ratio, measuring shares up against its operating cash flow makes far more sense. That's because Amazon tends to reinvest most of its operating cash flow back into high-growth initiatives and its logistics network. The 12X multiple Amazon is trading at relative to Wall Street's forward-year cash flow estimate is a far cry from the 23X to 37X multiple to cash flow the company ended every year with in the 2010s.
PubMatic
A second top-tier growth stock you'll be kicking yourself for not buying following the Nasdaq bear market swoon is adtech stock PubMatic (PUBM 1.75%). Even though the ad environment is exceptionally challenging at the moment, small-cap PubMatic offers a variety of competitive advantages and catalysts that can deliver big gains to patient investors.
PubMatic is a sell-side platform (SSP) in the cloud-based programmatic ad space. In easier-to-understand terms, its platform helps publishing companies sell their display space. There's been quite a bit of consolidation among SSPs in recent years, which has allowed PubMatic to somewhat steadily grow its market share.
Additionally, PubMatic finds itself in the most lucrative niche within the advertising industry. It's entirely focused on digital ads, with video, mobile, and connected TV (CTV) being its fuel. CTV should be a clear bright spot for PubMatic and allow it to outpace its peers in the growth department over the next three to five years.
Furthermore, PubMatic's management team made the wise decision (in hindsight) to build out its cloud-based infrastructure rather than rely on a third-party platform. This decision is now allowing PubMatic to hang on to more of its revenue as it scales. In other words, it should help the company generate superior margins relative to other SSPs.
Lastly, PubMatic is swimming with cash. It closed out June with nearly $171 million in cash, cash equivalents, and marketable securities, with no debt. It's also generated positive cash from operations for nine consecutive years.
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AstraZeneca
The third unsurpassed growth stock you'll regret not buying following the Nasdaq bear market decline is pharmaceutical giant AstraZeneca (AZN 0.19%). Though the removal of its COVID-19 vaccine from pharmacy shelves has dinged its sales growth over the very short term, AstraZeneca has three core indications that can sustain double-digit earnings growth.
To start, AstraZeneca's oncology drugs have delivered 21% currency-neutral sales growth through the first half of 2023. The company has four well-defined blockbusters -- Tagrisso, Imfinzi, Lynparza, and Calquence -- that offer a sustained double-digit constant-currency growth rate.
The second area of focus that's helping AstraZeneca and its shareholders win is the cardiovascular (CV) space. CV segment sales are up 19% on a currency-neutral, year-to-date basis, with next-gen type 2 diabetes drug Farxiga leading the charge. Based on its pace of sales growth (39% year to date, currency-neutral), Farxiga may top $6 billion in full-year sales and end 2023 as the company's top-selling drug.
Third, and finally, there's AstraZeneca's rare-disease drug portfolio. AstraZeneca landed a winner when it acquired ultra-rare-disease drug specialist Alexion Pharmaceuticals in July 2021. While there's no question that researching therapies targeting a very small pool of patients is risky, there's also plenty of reward for successful clinical trials -- namely, a lack of competition and limited pushback on list prices from health insurers.
To boot, Alexion Pharmaceuticals developed a next-generation version (known as Ultomiris) of its blockbuster therapy Soliris. Ultomiris will help AstraZeneca hang on to the bulk of its rare-disease cash flow for many years to come.
Starbucks
A fourth top-tier growth stock you'll regret not buying in the wake of the Nasdaq bear market dip is coffee chain Starbucks (SBUX 0.47%). Despite facing a challenging couple of years during the COVID-19 pandemic that saw some of its stores close or cater only to drive-thru customers, Starbucks looks stronger than ever.
One catalyst in Starbucks' corner is the company's pricing power. While the consumer has started to push back against higher prices in grocery stores, Starbucks has, historically, had no trouble outpacing the domestic and international rate of inflation. The company's fiscal third quarter, ended July 2, featured a 4% increase in average ticket size.
The company's Rewards membership program is also paying dividends, with 31.4 million active members, as of the beginning of July. In exchange for a free drink or food item from time to time, Rewards members tend to spend more per ticket, and they're more likely to use mobile ordering. Increasing mobile order usage represents an easy way for the company to reduce wait times for patrons.
Starbucks has also done a bang-up job of adjusting to consumer buying habits since the COVID-19 pandemic began. It modernized its drive-thru ordering board to include video during the ordering process, and it's continued to adjust its food offerings to draw in more customers during lunch hours. Focusing on convenience and high-margin food items has always been a winning strategy for Starbucks.
Lastly, Starbucks can expect a steady rebound in the operating performance of its nearly 6,500 China-based stores over the next couple of years. While it's going to take time for China's economy to bounce back from years of stringent COVID-19 mitigation measures, Starbucks has (as noted) taken the necessary steps to bring consumers into its stores and encourage them to spend more.
