When examined over extended periods, the stock market is a big-time moneymaker. But over shorter timeframes, things become a lot less predictable.
Since this decade began, Wall Street's three major stock indexes have bounced back and forth between bull and bear markets. These vacillations have been especially pronounced for the growth-driven Nasdaq Composite (^IXIC 2.02%), which plunged 33% in 2022 and has gained nearly 25% on a year-to-date basis, as of the closing bell on Nov. 1. Despite this sizable gain, the index responsible for lifting the broader market to new heights in 2021 remains 19% below its record-closing high.
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While some investors are liable to view the past two years as something of a lost period for growth stocks, long-term-minded investors will perceive this drop as an opportunity to buy stakes in high-quality growth companies at a discount. With the exception of the 2022 bear market, every sizable decline in the Nasdaq Composite has, eventually, been cleared away by a bull market.
What follows are four unique growth stocks you'll regret not buying in the wake of the Nasdaq bear market dip.
Alphabet
The first one-of-a-kind growth stock you'll be kicking yourself for not adding following a significant swoon in the Nasdaq Composite is Alphabet (GOOGL 10.22%) (GOOG 9.96%), the parent of familiar internet search engine Google and streaming platform YouTube. Although ad-driven businesses could come under pressure if the U.S. economy dips into a recession, Alphabet has more than enough competitive advantages to become a stronger business over time.
If you're wondering why Alphabet is such a cash flow giant, look no further than its internet search engine. Google was responsible for almost 92% of worldwide internet search share in September 2023, and it's consistently accounted for 90% to 93% of monthly global search share over the past eight years. Having a practical monopoly in search gives the company exceptional ad-pricing power and should, over time, help lift its operating margin.
YouTube is no slouch, either. It's the world's second most-visited social site, behind Meta Platforms' Facebook. In particular, shortform videos, known as Shorts, have been driving eyeballs to YouTube. Over the past two years, the number of daily Short views has catapulted from approximately 6.5 billion to more than 50 billion. This represents an opportunity for YouTube to substantially bolster its advertising sales.
However, Alphabet's most intriguing growth opportunity might be its cloud infrastructure service segment, Google Cloud. Despite a modest tapering in year-over-year growth for Google Cloud in the September-ended quarter, the segment delivered its third consecutive quarter of operating profit following multiple years of losses. Since enterprise cloud spending has an exceptionally long runway, the expectation is for sustained double-digit growth from Google Cloud, along with a big uptick in operating cash flow.
Alphabet stock is about as cheap as it's ever been as a publicly traded company, relative to its forward-year cash flow.
Fastly
A second unique growth stock that's begging to be bought in the wake of the Nasdaq bear market dip is edge cloud company Fastly (FSLY 4.43%). Even though the company's operating losses have been eyesores in an uncertain economic climate, a new CEO and well-defined catalysts have Fastly's needle pointing higher.
Fastly is best known for its content delivery network and the security services it provides. Effectively, it's tasked with getting data from the edge cloud to end users in 35 countries as quickly and securely as possible. Despite some minor service hiccups, Fastly's key performance indicators are headed in the right direction.
This past week, Fastly reported average spend per enterprise customer of $858,000, up 11% from the prior-year period. Its total customer count increased modestly to north of 3,100 after an unexpected (but tiny) drop in the sequential second quarter.
What's even more important is that Fastly's dollar-based net expansion rate (DBNER) has consistently hovered between 118% and 123% over the past two years. What DBNER shows is that Fastly's existing clients are spending between 18% and 23% more year over year. When coupled with a 99.2% annual revenue retention rate, it's pretty clear that Fastly's customers are sticking around.
Another key reason Fastly is primed for long-term success is its CEO. Prior to taking over as Fastly's CEO on Sept. 1, 2022, Todd Nightingale worked as the executive vice president and general manager of enterprise networking and cloud with Cisco Systems. Nightingale has a keen understanding of Fastly's key growth opportunities, but importantly also understands where costs can be reduced. Fastly is making meaningful progress under Nightingale's leadership and may have a shot at recurring profits as early as next year.
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BioMarin Pharmaceutical
The third extraordinary growth stock you'll regret not adding in the wake of the Nasdaq bear market decline is biotech company BioMarin Pharmaceutical (BMRN -1.53%). While near-term economic concerns have weighed on the healthcare sector of late, BioMarin has an abundance of tailwinds in its sails.
BioMarin is focused on treating patients with ultra-rare diseases. While there are financial risks associated with developing drugs for small pools of prospective patients, there are ample rewards, too. Aside from improving the quality of life for patients with incredibly rare diseases, BioMarin has little or no competition in the areas it's focused on, and faces minimal pushback from health insurers over its high list prices. In short, Food and Drug Administration (FDA)-approved drugs in the ultra-rare disease category tend to generate large piles of operating cash flow.
Healthcare is also an extremely defensive sector. People don't get the luxury of choosing when they become ill or what ailment(s) they develop. Regardless of what's going on with the U.S. economy, demand for BioMarin's novel therapies is likely to remain steady in any economic climate.
The likely workhorse for BioMarin's product portfolio is Voxzogo, a treatment for children aged 5 and over with achondroplasia. This is a drug that should eventually surpass $1 billion in peak annual sales, primarily because of increasing volume, exceptional pricing power, and label expansion opportunities. Voxzogo, along with the ongoing launch of severe hemophilia A drug Roctavian, can help BioMarin sustain a double-digit growth rate for years to come.
The valuation makes a lot of sense, too. The company's price-to-earnings growth (PEG) ratio of 0.91 suggests that Wall Street and investors are undervaluing BioMarin's profit potential, relative to its future growth prospects.
Etsy
The fourth unique growth stock you'll regret not buying in the wake of the Nasdaq bear market dip is none other than e-commerce platform Etsy (ETSY 0.34%). Despite near-term economic concerns hitting retail stocks pretty hard, Etsy offers an unequaled approach in e-commerce that sets it apart from the competition.
When most people think of online retail sales, Amazon (NASDAQ: AMZN) comes to mind. According to a March 2022 report from eMarketer, Amazon brings in about $0.40 of every $1 spent in U.S. online retail sales.
However, Amazon's operating model is impersonal and focused on volume, as evidenced by its continued investments in its logistics operations. Meanwhile, Etsy's advantage derives from its merchant base, which is comprised of self-proprietors and small businesses. Etsy's merchants can provide customization and personalization at scale that no other company, including Amazon, can match. While Amazon and Etsy may be in the same arena, they aren't direct competitors.
Etsy's growth is primarily fueled by its "habitual buyers." These are shoppers who've made at least six purchases over the trailing 12 months, with the aggregate total of those buys hitting or surpassing $200. Despite a decline in habitual buyers over the past year, the aggregate number of habitual buyers has tripled since prior to the pandemic (September 2019 to September 2023). Retaining these shopping diehards, while also reactivating former buyers, is a recipe for Etsy to sustain double-digit sales and profit growth.
The final catalyst for Etsy is its pricing power. On the heels of meaningful investments in its platform (like video ads and artificial intelligence-driven search), Etsy's take-rate -- what it gets to keep from each transaction, including fees -- has crept higher. Having the ability to increase fees as gross merchandise sales expand is a powerful tool that can dramatically increase profitability over the long haul.
