Investing on Wall Street can sometimes be an adventure. Since the start of 2020, the three major stock indexes have bounced between bull and bear markets, with the growth-driven Nasdaq Composite (^IXIC +0.36%) enduring the wildest swings.
Although the Nasdaq Composite was largely responsible for lifting the broader market to new heights two years ago, and it's gained nearly 23% on a year-to-date basis, the index is still 20% below its record-closing high of mid-November 2021 and attempting to recover from the 2022 bear market. While some investors would view a 20% move lower in nearly two years as a disappointment, growth-seeking investors will approach this decline as an opportunity.
Image source: Getty Images.
Despite never knowing when downturns in the major stock indexes will begin, how long they'll last, or how steep the decline will be, we do know that every double-digit percentage drop has, eventually, been wiped away by a bull market. The Nasdaq falling 20% from its record-closing high simply means that industry-leading and/or game-changing businesses can be purchased at discounts.
What follows are four dominant growth stocks you'll regret not buying in the wake of the Nasdaq bear market dip.
Meta Platforms
The first unrivaled growth stock you'll be kicking yourself for not buying with the Nasdaq Composite still well below its all-time high is social media behemoth Meta Platforms (META +0.83%). Although the prospect of a weaker U.S. economy could weigh on Meta's ad revenue over the very short term -- 98.4% of Meta's $94.8 billion in year-to-date sales through the end of September derived from advertising -- we're talking about a company with a well-defined moat in social media.
NASDAQ: META
Key Data Points
Despite aggressive competition, Meta owns the most important "real estate" in the social media landscape. Facebook is the most-visited website globally, while WhatsApp, Instagram, and Facebook Messenger helped to collectively attract 3.96 billion monthly active users during the September-ended quarter.
There isn't a social media company that offers merchants access to a larger number of prospective consumers than Meta Platforms. As a result, Meta is going to command exceptional ad pricing power more often than not.
Additionally, Meta Platforms has the cash flow and balance sheet to merit risk-taking. The company closed out the third quarter with more than $61.1 billion in cash, cash equivalents, and marketable securities, compared to $18.4 billion in long-term debt. It's also generated $51.7 billion in net cash from operating activities since the year began. Even though the company's metaverse segment, Reality Labs, is losing money hand over fist, Meta can easily afford Mark Zuckerberg's aggressive investments in augmented/virtual reality.
Meta's valuation also makes a lot of sense. Meta stock can be purchased for just 10 times the consensus cash flow for 2024, which is well below the multiple of nearly 16 times the cash flow Meta has traded at over the previous five years.
NASDAQ: OKTA
Key Data Points
Okta
A second dominant growth stock you'll regret not scooping up in the wake of the Nasdaq bear market swoon is cybersecurity company Okta (OKTA +6.92%). Though Okta's stock is reeling from a security breach the previous week, numerous catalysts have Okta's needle pointing higher in the years to come.
To start with, cybersecurity has become a necessary service for businesses with an online or cloud-based presence. Regardless of whether the U.S. economy is expanding or contracting, hackers and robots don't take a holiday from trying to steal sensitive information. This consistency of demand ensures relatively stable cash flow for third-party cybersecurity solution providers.
Where Okta has laid its claim to success is as an identity verification specialist. Okta estimates there to be an $80 billion addressable market in cloud-based identity verification, with the company currently only scratching the tip of the iceberg.
Okta's platform is cloud-native, artificial intelligence-driven (AI-driven), and powered by machine learning (ML). Although there's always room for improvement -- as evidenced by last week's security breach -- cloud-based, AI-fueled cybersecurity solutions with ML are expected to evolve over time and become more effective at recognizing and responding to potential threats. A subscription-focused operating model should lead to predictable cash flow and juicy margins for Okta.
Furthermore, higher-than-expected costs following its acquisition of Auth0 in May 2021 should be firmly in the rearview mirror. Auth0 will help Okta secure a larger piece of the $30 billion customer identity market and should play a key role in boosting the now-combined company's international reach.
Image source: Getty Images.
Exelixis
The third unmatched growth stock you'll regret not adding to your portfolio in the wake of the Nasdaq bear market decline is cancer-drug developer Exelixis (EXEL +0.20%). While ongoing litigation concerning patents for its lead drug (Cabometyx) is currently weighing on Exelixis' stock, the puzzle pieces offer a favorable risk-versus-reward scenario for the company.
Before diving into company specifics, note that healthcare companies tend to be highly defensive. Recessions or economic slowdowns don't stop people from becoming ill or requiring prescription drugs. If anything, improved cancer screening tools should continue to lift demand for Exelixis' approved therapies in any economic climate.
Cabometyx is what makes Exelixis' product portfolio tick. It's approved as a treatment for first- and second-line renal cell carcinoma, as well as advanced hepatocellular carcinoma. Assuming a favorable ruling against generic drugmaker MSN Laboratories, which wants to bring a generic version of Cabometyx to market sooner rather than later, Exelixis' blockbuster drug could be protected from an influx of generics until 2030.
To add to the above, Cabometyx has an abundance of label expansion opportunities. Exelixis is examining its lead cancer drug in around six dozen clinical trials as a monotherapy or combination treatment. Just a handful of successes is all it would take to extend Cabometyx's sales growth and push peak annual revenue from the drug to north of $2 billion.
Don't overlook the company's cash-rich balance sheet, either. With $1.27 billion in cash, cash equivalents, and short-term investments on hand, along with $839 million in long-term/restricted investments, Exelixis has more than enough capital to fuel internal research, collaborations, and perhaps even acquisitions to expand its product portfolio and pipeline beyond Cabometyx.
NASDAQ: GOOGL
Key Data Points
Alphabet
The fourth dominant growth stock you'll regret not buying in the wake of the Nasdaq bear market dip is Alphabet (GOOGL 0.31%)(GOOG 0.51%), the parent of internet search engine Google, streaming platform YouTube, and autonomous-driving company Waymo, among other ventures. Although Wall Street wasn't thrilled with Alphabet's slowing growth from its cloud segment (Google Cloud) in the third quarter, the company is well positioned for long-term success and significant cash flow growth.
The no-brainer competitive edge Alphabet brings to the table is its world-leading internet search engine. Google accounted for nearly 92% of worldwide search share in September, and it hasn't tallied less than 90% of global search in any given month since the first quarter of 2015. As the undisputed go-to for advertisers, Google is going to command exceptional ad-pricing power most of the time.
However, Alphabet's cloud segment should be an even bigger growth driver for the company. Despite producing "only" 22.5% year-over-year sales growth in the third quarter, Google Cloud is the worldwide No. 3 in cloud infrastructure service spending. Enterprise cloud spending is still in its very early innings, which should yield a long runway of double-digit sales growth. To boot, Google Cloud has been profitable for three consecutive quarters following years of operating losses.
YouTube is another ancillary operating segment that's a key cog in Alphabet's long-term growth. It's the second-most visited website in the world, behind Facebook, and has seen Shorts (short-form videos often lasting under 60 seconds) rapidly grow in popularity. Daily views of Shorts have surged from 6.5 billion to more than 50 billion in just two years, representing a surefire opportunity for YouTube to bolster its advertising revenue and pricing power.
Similar to Facebook, Alphabet is historically inexpensive. Following the drubbing it took last week, shares of the company can be purchased for approximately 13 times forward-year cash flow. That's below the multiple of 18 times the year-end cash flow that shares have averaged over the previous five years. Alphabet, like Meta and the other dominant businesses on this list, is a screaming bargain.
