It's amazing what a difference a year can make on Wall Street. With the three major stock indexes continuing to oscillate between bear and bull markets in successive years, 2023 turned out to be a phenomenal year for the bulls. Although the Dow Jones Industrial Average powered to a record high, it was the 43% yearly gain for the Nasdaq Composite (^IXIC 2.02%) that stole the show.
But in spite of this incredible gain following the 2022 bear market, the growth-fueled Nasdaq still hasn't eclipsed its previous all-time high. As of the closing bell on Jan. 3, 2024, the Nasdaq remained more than 9% below its high-water mark.
Image source: Getty Images.
While short-term traders might view the past 26 months as a lost period for growth stocks, long-term investors are liable to see this decline as an opportunity to pounce. After all, every notable decline in the major indexes has eventually (key word!) been placed into the back seat by a bull market rally.
What follows are four superior growth stocks you'll regret not buying in the wake of the Nasdaq bear market dip.
Palantir Technologies
The first stellar growth stock you'll be kicking yourself for not scooping up with the Nasdaq Composite still well off of its record-closing high is data-mining company Palantir Technologies (PLTR 3.73%). Although Palantir trades at an aggressive profit multiple -- a little above 50 times forward-year earnings -- it possesses well-defined competitive advantages that merit a premium.
What Palantir is best-known for is its Gotham platform. Gotham is an artificial intelligence (AI)- and machine learning (ML)-driven software-as-a-service (SaaS) solution that primarily helps the U.S. federal government plan missions and gather data. Not only is there little worry of receiving payment since the U.S. government is its primary customer, but the contracts Palantir lands often last four or five years. This leads to predictable cash flow and steady double-digit sales growth.
An even bigger long-term growth driver for Palantir looks to be the company's Foundry platform. Foundry is Palantir's enterprise-focused SaaS solution incorporating AI and ML that helps businesses better understand their data so they can streamline their operations. Foundry is still very early in its ramp, with enterprise customer count rising by 34% in the September-ended quarter from the prior-year period.
Furthermore, a combination of sustained double-digit sales growth and mindful cost reductions have pushed Palantir over the bar to recurring profitability. The third quarter marked the company's fourth consecutive quarter of generally accepted accounting principles (GAAP) profit.
Lastly, but perhaps most importantly, Palantir Technologies has an irreplaceable operating model. No company comes close to bringing to the table what Palantir does at scale. This is why a hefty valuation premium can be supported.
JD.com
A second superior growth stock you'll regret not adding to your portfolio in the wake of the Nasdaq bear market plunge is China-based e-commerce company JD.com (JD 6.12%). Though China's economic data has left a lot to be desired over the past couple of months, JD is perfectly positioned to deliver for its patient shareholders.
One factor that's very much working in JD's favor is the reopening of China's economy following the end of "zero-COVID" mitigation measures. While these regulations were tossed aside in December 2022, it's taking time for the world's No. 2 economy to put supply chain snafus in the rearview mirror. Thankfully, e-commerce is still in its relatively early stages of growth in China. Once the country's economy finds its stride, JD.com has the potential to deliver sustained double-digit sales growth.
What really differentiates JD from its peers is the company's e-commerce operating model. Whereas leading e-commerce provider Alibaba generates a lot of its revenue from third-party sellers, JD brings home the bacon by predominantly acting as a true direct-to-consumer provider. In other words, JD handles inventory and logistics. The advantage of this approach is that it gives JD far more control over its operating margin than Alibaba.
Something else exciting about JD.com is the expected spinoff of two of its units: Property and Industrial. Not only will spinning off these segments and listing them on the Hong Kong stock exchange potentially reduce any antitrust concerns, but it'll make it easier for investors to understand how JD makes its money.
With a forward price-to-earnings (P/E) ratio of only 8, JD.com is ripe for the picking.
Image source: Getty Images.
AstraZeneca
A third exceptional growth stock you'll regret not buying in the wake of the Nasdaq bear market decline is pharmaceutical giant AstraZeneca (AZN 0.19%). After struggling through patent-cliff issues for what seemed like two decades, AstraZeneca is now firing on all cylinders with its expansive portfolio of therapeutics.
The two areas of focus that have really led the charge higher in recent years are Oncology and Cardiovascular. AstraZeneca has four cancer drugs that are bringing in north of $1 billion in annual sales -- three of which delivered double-digit constant-currency sales growth through the first nine months of 2023 (Tagrisso, Imfinzi, and Calquence). Meanwhile, type 2 diabetes drug Farxiga has produced 40% constant currency sales growth through September and looks to be on track to eclipse Tagrisso as the company's top-selling drug.
This is an excellent time to mention that healthcare companies are operationally well-insulated from Wall Street volatility and short-lived recessions. Since we have no control over when we become ill or what ailment(s) we develop, demand for prescription drugs tends to be constant in any economic climate. Translation: AstraZeneca's operating cash flow is highly predictable -- and Wall Street loves predictability.
The other key to AstraZeneca's success is its 2021 acquisition of ultra rare-disease drugmaker Alexion Pharmaceuticals. Though there are inherent risks with developing drugs that target very small pools of patients, there are also ample rewards for success. In addition to helping patients who previously had few or no treatment options, approved ultra-rare therapies face minimal pushback from insurers on list price, and often have little or no competition.
The cherry on top for AstraZeneca is that Alexion developed a next-generation treatment (known as Ultomiris) to its blockbuster drug Soliris. This will secure billions of dollars in annual cash flow from its rare disease segment for years to come.
Baidu
The fourth superior growth stock you'll regret not buying in the wake of the Nasdaq bear market dip is none other than China-based internet search juggernaut Baidu (BIDU 0.62%). Though China's slower-than-anticipated rebound following the pandemic has weighed on the country's biggest companies, Baidu, like JD, is ideally positioned to take advantage of long-term growth prospects in a variety of channels.
Baidu's foundational operating segment is its internet search engine, and that's unlikely to change. In December, Baidu accounted for 66.52% of all search share in China, according to data from GlobalStats. With few exceptions, it's maintained a 60% to 85% share of internet search in the world's No. 2 economy over the past nine years. As the clear leader in internet search, Baidu shouldn't have any trouble commanding reasonably strong ad-pricing power in most economic climates.
But there's more to like about Baidu than just its massive moat in internet search. Specifically, the company's burgeoning AI-driven segments offer outsized growth potential.
Apollo Go is the world's top autonomous ride-hailing company by total rides since inception (4.1 million). Meanwhile, enterprise cloud spending is still in its early stages of expansion, which should fuel a revenue ramp for Baidu's AI Cloud. AI has the potential to be a major cash-flow driver for Baidu, but it could require some patience as the technology matures.
The valuation also makes a lot of sense. Even accounting for the added regulatory risks that comes with investing in China stocks, Baidu shares can be purchased for less than 11 times forward-year earnings. That's exceptionally inexpensive for a company that's historically grown by a double-digit rate.
