Since this decade began, investors have had their resolve repeatedly tested. Wall Street has vacillated wildly following the 2020 COVID-19 crash, the stimulus-fueled period of investment euphoria in 2021, and the 2022 bear market, with the growth-focused Nasdaq Composite (^IXIC 2.02%) seeing the broadest swings. Even with the Nasdaq higher by 30% on a year-to-date basis through the closing bell on Oct. 10, it's still nearly 16% below its record-closing high, set in mid-November 2021.
Whereas some folks might view a sizable decline in the Nasdaq Composite as a failure, long-term investors will see it as an opportunity to buy into high-growth, industry-leading companies at a marked discount. Keep in mind that every major dip throughout history in the Nasdaq Composite, save for the 2022 bear market, to this point, has eventually been cleared away by a bull market rally.
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What follows are four growth stocks in a class of their own that you'll regret not buying in the wake of the Nasdaq bear market dip.
Mastercard
The first unrivaled growth stock you'll regret not scooping up with the Nasdaq Composite still well below its record-closing high is payment processor Mastercard (MA 0.07%). Short-term concerns about the U.S. potentially dipping into a recession in the coming quarters is no reason to steer clear of this payment juggernaut.
One of the best reasons to invest in Mastercard over the long run is the macro tailwinds in its sails. Even though recessions are a perfectly normal part of the economic cycle, the one dozen U.S. recessions that have occurred following World War II have lasted between two and 18 months. Meanwhile, periods of expansion are typically measured in multiple years, if not the length of an entire decade. Mastercard is a company that benefits from a steady increase in consumer and enterprise spending during these disproportionately long periods of expansion.
On a more company-specific basis, Mastercard has a firm grasp on the No. 2 market share position in the U.S. with regard to credit card network purchase volume. Number two is still an envious place to be in the largest market for consumption globally.
However, Mastercard's greatest growth opportunities likely lie outside the confines of the United States. Most emerging markets remain underbanked, which should provide a multiyear, if not multidecade, opportunity for the company to expand its payment infrastructure organically or acquisitively into these faster-growing countries.
Lastly, Mastercard has avoided dipping its toes into the lending arena and has stuck with payment facilitation. The advantage of this approach is that it doesn't expose the company to credit delinquencies and loan losses during inevitable recessions. Not having to set aside capital to cover loan losses is a competitive edge that helps Mastercard bounce back from downturns quicker than most financial stocks.
Airbnb
A second growth stock in a class of its own that you'll regret not adding to your portfolio following the Nasdaq bear market decline is stay-and-hosting platform Airbnb (ABNB 0.75%). Similar to Mastercard, worries about a possible economic slowdown and what that might do to travel spending shouldn't stop long-term investors from pouncing on this travel-industry game changer.
The first thing investors should notice about Airbnb is that it's still in its very early innings of expansion. There are somewhere in the neighborhood of 1 billion homes worldwide, and Airbnb has only tapped "over 4 million" hosts on its platform.
Likewise, Airbnb logged more than 115 million booked nights and experiences during the June-ended quarter, which works out to an extrapolated 460 million combined bookings on an annual run-rate basis. For context, Airbnb recorded just 140 million bookings in the entirety of 2018. Between adding new hosts and gaining new travelers, Airbnb has a platform that can easily support sustained double-digit growth.
Airbnb has also observed phenomenal growth in long-term stays (those lasting 28 nights or longer). The dynamics of the labor market have drastically changed in the wake of the COVID-19 pandemic. With more people working remotely than ever before, Airbnb is benefiting from employees no longer being tethered to a single location.
Furthermore, Airbnb has a no-brainer opportunity to get its hands on a greater share of travel spending. Beyond just competing with hotels via its online stay-and-hosting marketplace, look for the company to expand on its success via its Experiences segment. While it's currently relying on local experts to lead travelers on adventures, Airbnb looks like a logical candidate to partner with transportation and/or food companies in the future.
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Palo Alto Networks
The third unsurpassed growth stock you'll be kicking yourself for not scooping up following the Nasdaq bear market swoon is cybersecurity company Palo Alto Networks (PANW 0.91%). Despite a competitive landscape, Palo Alto brings well-defined advantages and sustained double-digit growth to the table.
For the past five years, Palo Alto Networks has shifted its focus away from physical firewall products to cloud-based software-as-a-service (SaaS) security solutions. Over that time, the percentage of net sales derived from cloud-based SaaS grew from nearly 62% to about 77%. While this 15% shift over five years might sound a bit underwhelming, it's completely transformed Palo Alto's businesses for the better.
To start with, cloud-based SaaS that's driven by artificial intelligence (AI) and machine learning solutions should be considerably more successful at recognizing and responding to potential threats than on-premises solutions.
Shifting to a subscription-based model will also help the company better retain clients, as well as smooth out its revenue recognition relative to physical firewall orders. Recurring revenue now accounts for 79% of total sales, which is up 11 percentage points from the comparable period three years ago.
To boot, the company's subscription-focused model has substantially improved its ability to land large clients. The number of deals generating at least $20 million in annual recurring revenue soared 43% in fiscal 2023 (the company's fiscal year ends July 31).
The cherry on top for Palo Alto is that cybersecurity solutions have practically evolved into a necessary service. For businesses with an online and cloud-based presence, protecting their and their clients' data is a must in any economic climate.
Amazon
A fourth growth stock in a class of its own you'll regret not buying in the wake of the Nasdaq bear market dip is e-commerce behemoth Amazon (AMZN 3.43%). In spite of lackluster growth in online retail sales in recent quarters, Amazon's future remains bright.
Most people are familiar with Amazon because of its globally dominant online marketplace. In the U.S., Amazon accounts for approximately 40% of online retail sales. But while e-commerce generates a lot of revenue for the company, it's a generally low-margin operating segment. What matters far more to Amazon's cash-flow generation is that its three higher-margin ancillary segments are firing on all cylinders.
The most important of these three "ancillary" operating segments is Amazon Web Services (AWS). AWS is the world's leading cloud infrastructure service provider, and it's generating in excess of $88 billion in annual run-rate revenue. Enterprise cloud spending is still in its very early stages, which suggests that AWS is perfectly positioned to be Amazon's leading driver of cash flow expansion throughout this decade, if not well beyond.
Subscription services is another key segment for Amazon. The last time the company updated Wall Street in April 2021, it had surpassed 200 million global Prime subscribers. Given the slow but steady expansion of Amazon's online marketplace, coupled with its exclusive rights to Thursday Night Football, there's reason to believe Amazon has substantially added to its subscriber count.
Lastly, advertising services is fueling Amazon's rapid growth in operating cash flow. Amazon is one of the most-visited social sites in the world, which gives it meaningful pricing power over merchants looking to advertise their products and services.
Based on Wall Street's consensus, Amazon is expected to more than triple its operating cash flow between 2022 and 2026, which means it's trading at a historically cheap valuation.
