Patience pays off handsomely on Wall Street. However, it can be difficult to remain steadfast when the broader market is being whipsawed.
Since this decade began, all three major stock indexes have alternated between bull and bear markets, with the growth stock-driven Nasdaq Composite (^IXIC 0.26%) oscillating the wildest. After losing 33% of its value during the 2022 bear market, the innovation-fueled index has surged higher by 35% on a year-to-date basis through the closing bell on Nov. 16.
Image source: Getty Images.
Despite this rally, the Nasdaq Composite remains 12% below its record-closing high from two years prior. While short-term traders are likely to view this two-year stretch as a lost period for growth stocks, it represents a moment of opportunity for long-term investors to pounce on high-quality companies at a discount. After all, every downturn in the major stock indexes, including the Nasdaq Composite, has eventually been cleared away by a bull market rally.
What follows are four unparalleled growth stocks you'll regret not buying in the wake of the Nasdaq bear market dip.
PayPal Holdings
The first unequaled growth stock that's begging to be bought with the Nasdaq Composite down double digits from its record-closing high is fintech leader PayPal Holdings (PYPL +1.86%). Although competition has weighed on PayPal's gross margin over the past couple of quarters, it's a company with well-defined advantages and an exceptionally long growth runway.
NASDAQ: PYPL
Key Data Points
While estimates vary, a May report from Boston Consulting Group calls for a sixfold increase in annual global-fintech revenue to $1.5 trillion by the turn of the decade. The adoption of digital payments is only expected to grow, which will favor transaction- and fee-based platforms like PayPal.
In spite of a challenging economic climate, the total payment volume (TPV) traversing PayPal's network, sans currency movements, has sustained a double-digit growth rate. When consumers are, once again, confident about the U.S. economy, sustained TPV growth of around 20% may be possible.
But what's been really impressive about PayPal is its user-engagement statistics. When 2020 came to a close, the average active account had completed just shy of 41 transactions over the trailing-12-month (TTM) period. As of the end of September 2023, active accounts on PayPal were nearing nearly 57 transactions over the TTMs. Even with active account growth somewhat stagnant at the moment, existing accounts are using digital payments more than ever before. That's great for a fee-driven operating model.
Don't overlook the valuation, either. Newly appointed CEO Alex Chriss understands how to keep costs under control while emphasizing growth in key channels. At roughly 10 times forward-year earnings, PayPal has never been cheaper as a publicly traded company.
NYSE: PINS
Key Data Points
A second unparalleled growth stock you'll regret not scooping up in the wake of the Nasdaq bear market decline is social media stock Pinterest (PINS +1.91%). Despite weaker ad spending over the past couple of months, Pinterest is perfectly positioned to capitalize on a handful of catalysts.
To start with, investors should recognize that ad-driven businesses like Pinterest benefit from patience. Even though recessions and emotions can weaken ad spending over short periods, the U.S. and global economy spend a disproportionate amount of time expanding relative to contracting.
Beyond this favorable macroview, Pinterest has two catalysts in its corner. First, it's had no trouble monetizing its user base. In spite of a challenging ad environment in 2022, Pinterest delivered 10% average revenue per user (ARPU) growth. Though ARPU growth has been more modest this year, we're seeing a solid bounce-back in APRU from Europe and Rest-of-World markets. Pinterest's 482 million monthly active users (MAUs) are enticing advertisers to pay a premium to get their message in front of the company's growing user base.
Another big advantage for Pinterest is its operating model. Whereas most social sites rely on data-tracking tools to help merchants target their message(s) to users, Pinterest's entire platform is based on its MAUs willingly and freely sharing the things, places, and services that interest them. This makes it easy for Pinterest to serve critical information to merchants on a silver platter. App development changes aren't going to ding Pinterest's bottom line.
Pinterest is also reasonably cheap. Even with its shares at a 22-month high, the stock can be purchased for 24 times consensus earnings in 2024. With the company's earnings per share (EPS) expected to grow by an annualized average of 39% over the next five years, Pinterest shares are a bargain.
Image source: Getty Images.
PubMatic
The third amazing growth stock you'll regret not adding to your portfolio in the wake of the Nasdaq bear market drop is adtech stock PubMatic (PUBM +1.95%). A temporary slowdown in digital ad spending isn't going to derail this company's long-term, double-digit growth potential.
Similar to Pinterest, PubMatic benefits from the fact that economic downturns have been short-lived. Just three out of 12 recessions following World War II have lasted 12 months, with none surpassing 18 months. Over extended periods, ad-driven companies often see their sales and ad-pricing power rise in lockstep with the U.S. economy.
What makes PubMatic special is its digital-advertising focus. It's a sell-side platform (SSP) whose cloud-based programmatic ad infrastructure helps publishing companies sell their digital display space. Annualized growth in digital ads for connected TV, mobile, and video (i.e., PubMatic's bread and butter) should easily top 10% through mid-decade if not well beyond. This sustained, double-digit growth potential, coupled with consolidation among SSPs, puts PubMatic in the driver's seat.
The oft-overlooked reason why PubMatic can truly outperform over the long run is its decision to build out its cloud-based programmatic ad infrastructure. Management could have easily relied on a third-party platform. However, choosing to build out its infrastructure means PubMatic can hang onto more of its revenue as it grows.
PubMatic's cash balance should turn heads, too. This is a company that closed out the third quarter with $171.4 million in cash, cash equivalents, and marketable securities, with no debt -- 22% of its market cap is derived from its cash value -- and a nine-year streak of positive operating cash flow. It's an inexpensive way to own a piece of the hottest growth trend within the advertising industry.
NASDAQ: META
Key Data Points
Meta Platforms
The fourth unparalleled growth stock you'll regret not buying in the wake of the Nasdaq bear market dip is social media juggernaut Meta Platforms (META 1.06%). To seemingly keep with theme, a short-term drop in ad spending is no reason to shy away from a time-tested industry leader and cash-flow machine like Meta.
If you thought Pinterest's 482 million MAUs commanded ad-pricing power, wait till you get a closer look at Meta's social media "real estate," which has attracted nearly 4 billion MAUs. It owns the most popular social site on the planet, Facebook, as well as Instagram, WhatsApp, and Facebook Messenger, which are consistently among the most downloaded social sites in the world. There's also Threads, which became the quickest social app to reach 100 million users (in just five days) in history.
Merchants are well aware that Meta's social media assets provide them with the most effective way to reach as many users as possible and/or target MAUs. Not surprisingly, Meta commands exceptionally strong pricing power more often than not.
Although skeptics have harped on Meta's exorbitant losses from its augmented/virtual reality segment known as Reality Labs, the truth is CEO Mark Zuckerberg's company has the luxury of making aggressive investments in its future. Meta closed out September with more than $61.1 billion in cash, cash equivalents, and marketable securities, and it's generated $51.7 billion in net cash from its operations through the first nine months of the current year. If Zuckerberg wants to position Meta as an on-ramp to the metaverse, his company can take those leaps without hurting its core operations.
Have I mentioned that Meta stock is inexpensive? While this might be hard to believe considering it's more than tripled from its 2022 bear market low, Meta shares can be purchased for just 11 times forward-year cash flow. That's markedly lower than the nearly 16 times cash flow Meta stock has averaged over the previous five years.
