When examined over multiple decades, Wall Street has an exceptional track record of making patient investors richer. But over shorter timelines, forecasting directional moves in the major indexes is a coin toss.
Since this decade began, the major stock indexes have swung between bear and bull markets, with the growth-driven Nasdaq Composite (^IXIC 2.02%) enduring the wildest moves. After gaining 21% in 2021, the widely followed Nasdaq shed 33% during the 2022 bear market. This year, it has surged 26% as of Oct. 4.
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But in spite of this sizable outperformance through the first nine months and change of 2023, the Nasdaq Composite still sits nearly 18% below its all-time high, set in November 2021. Though this drop might be disappointing for short-term traders, it's an ideal opportunity for long-term investors to pounce on industry-leading growth stocks at a discount. Every major decline throughout history (save for the 2022 bear market) has eventually been cleared away by a bull market rally.
What follows are four second-to-none growth stocks you'll regret not buying in the wake of the Nasdaq bear market dip.
Alphabet
The first unsurpassed growth stock you can confidently buy with the Nasdaq Composite still well below its record-closing high is Alphabet (GOOGL 10.22%) (GOOG 9.96%), the parent company of internet search engine Google, autonomous-vehicle company Waymo, and streaming site YouTube, among other businesses.
Though the possibility of U.S. economic weakness is a threat to advertising-driven companies, Alphabet has a numbers game very much working in its favor. Despite recessions being a normal and inevitable part of the economic cycle, periods of expansion are known for lasting considerably longer. What this suggests is that Alphabet will enjoy strong ad-pricing power more often than not.
What makes it so dominant is its internet search engine, Google, which accounted for 91.6% of the worldwide internet search market in September, according to data from GlobalStats. Looking back further, it has controlled at least 90% of global internet search since April 2015. As the unquestioned leader in search, Alphabet should have no trouble growing its ad revenue and generating boatloads of operating cash flow.
The company also owns YouTube, the second most-visited social site on the planet, with north of 2.5 billion monthly active users, per DataReportal. The rollout of Shorts (short-form videos that are usually less than 60 seconds long) has provided Alphabet with another great opportunity to generate significant ad revenue.
And it operates Google Cloud, the global No. 3 cloud infrastructure service provider. Enterprise cloud spending still looks to be in its early stages, which sets up the now-profitable Google Cloud to be a significant cash-flow driver for the second half of the decade.
Fiverr International
The next second-to-none growth stock you'll regret not buying following the Nasdaq bear market decline is Fiverr International (FVRR 3.74%). Despite concerns that the U.S. economy could weaken, this online-services marketplace has three notable advantages.
First, the pandemic has completely reshaped the labor market. While some people have returned to the office, more are continuing to work remotely than ever before. This is an ideal development for Fiverr, which aims to connect freelancers with businesses on its online platform.
Second is Fiverr's online-services marketplace. While most of its competitors allow freelancers to price their services at an hourly rate, Fiverr freelancers list their jobs at an all-inclusive price. This price transparency is unmatched, and employers on the platform seem to really appreciate it. Despite a challenging economy, spend per buyer on Fiverr has continued to climb.
Fiverr's third advantage (and the biggest of all) is its take rate -- i.e., the percentage of each negotiated deal it gets to keep, including fees. Its take rate of 30.7% has continued to increase and is practically double that of its closest competitors. In other words, Fiverr is taking a bigger slice of each deal without chasing away its freelancers or buyers.
If you want one more rock-solid reason to buy Fiverr, let it be the company's valuation: The stock can be bought for an inexpensive 12 times forward-year earnings.
Image source: Getty Images.
CrowdStrike Holdings
A third unequaled growth stock you'll regret not scooping up in the wake of the Nasdaq bear market drop is cybersecurity company CrowdStrike Holdings (CRWD 2.03%). Worries about a short-term slowdown in the U.S. economy are no reason to ignore CrowdStrike's abundant competitive advantages.
Before diving into what makes it tick, investors should first note that cybersecurity solutions are practically a necessity for businesses operating online or in the cloud. No matter how the U.S. economy performs, businesses will need to protect sensitive information (their own and that of customers) from hackers. This should lead to predictable cash flow for cybersecurity companies in any economy.
What sets CrowdStrike apart is its cloud-native Falcon security platform, which relies on artificial intelligence (AI) and machine learning to evolve over time and become more effective at recognizing and responding to potential end-user threats. Even though its pricier than many of its peers, the company's retention rate has climbed to 98% because businesses are willing to pay more for its premium services.
Add-on sales provide further evidence that Falcon is viewed as a superior protection platform by businesses. As of the end of July 2023, 63% of the company's clients had purchased at least five cloud-module subscriptions. A little over six years ago, not even 10% of its clients had purchased four or more cloud-module subscriptions.
Having existing clients that willingly add to their initial purchase(s) has lifted CrowdStrike's adjusted subscription gross margin to 80% through the first half of fiscal 2024 (the company's fiscal year ends Jan. 31).
Given CrowdStrike's impressive growth rate, the price/earnings-to-growth (PEG) ratio of 1.4 suggests it's still inexpensive.
Baidu
The final second-to-none growth stock you'll regret not buying in the wake of the Nasdaq bear market dip is China-based tech stock Baidu (BIDU 0.62%). The company's industry-leading growth and positioning more than offset the added risks that come with investing in Chinese stocks.
Based on data from GlobalStats, Baidu accounted for 67.4% of the search-engine market in China in September. With few exceptions, the company has maintained between 60% and 80% of internet search share in China for the last nine years. This makes it the clear go-to for advertisers in the world's No. 2 economy, which should lead to substantial ad-pricing power.
This is also a good time to mention that China's abandoning its controversial zero-COVID strategy in December 2022 should rekindle growth in Baidu's cash-cow online marketing segment. Though it'll likely take a few more quarters to remove the supply chain impediments that occurred during the pandemic, China's track record of superior economic growth gives Baidu's search engine a sustained pathway to low-double-digit sales growth.
But it's not just the search engine that's powering this company. Its aggressive investments in AI should yield healthy returns for the remainder of the decade, if not well beyond. The company's AI Cloud segment, along with Apollo Go -- China's top autonomous ride-hailing service -- can fuel double-digit growth in Baidu's non-online marketing sales.
The cherry on top for Baidu is that it's exceptionally cheap given its historically strong growth. The stock can be purchased for less than 12 times forward-year earnings, even with Wall Street's consensus forecast for a near-doubling in earnings per share between 2022 and 2026.
