There's never a dull moment when investing on Wall Street. Over the last four years, the major stock indexes have bounced between bear and bull markets on a couple of occasions, with the growth-fueled Nasdaq Composite (^IXIC 2.02%) enduring the wildest swings.
In 2022, the Nasdaq Composite dragged the broader market lower with a loss of 33%. In 2023, it led the major indexes higher, with a scorching-hot gain of 43%. But in spite of this huge rally following the 2022 bear market, the Nasdaq is the only one of the three major indexes that hasn't yet reached a new all-time high. Following the closing bell on Jan. 31, 2024, it remains nearly 6% below its November 2021 record close.
Image source: Getty Images.
For short-term traders, this underperformance for growth stocks has likely been painful. But for long-term-minded investors, notable dips are blessings in disguise. Eventually, every correction and bear market throughout history has been completely recouped by a bull market rally. With the Nasdaq Composite close to 6% below its all-time high, it simply means bargains can still be found.
Here are four eye-catching growth stocks you'll regret not buying in the wake of the Nasdaq bear market dip.
Etsy
The first amazing growth stock you'll be kicking yourself for not adding to your portfolio with the Nasdaq still below its record high is specialty e-commerce company Etsy (ETSY 0.34%). Despite certain predictive indicators cautioning that a recession is likely in 2024, Etsy's competitive advantages are strong enough to make its patient shareholders meaningfully richer over time.
The first differentiating factor for Etsy is its operating model. When most people think of e-commerce, Amazon probably comes to mind. A 2022 report from Insider Intelligence showed Amazon holding a nearly 40% share of U.S. online retail sales.
However, Amazon's operating model is based on volume and has little to do with product and service personalization. Etsy's e-commerce platform is entirely reliant on small merchants and self-proprietors who are willing to customize and personalize orders. No matter how large Amazon becomes, it's never going to be a direct competitor to what Etsy offers. In fact, no company comes close to the level of personalization that Etsy brings to the table at scale.
Many of Etsy's key performance metrics have improved dramatically over the trailing four years (prior to the start of the COVID-19 pandemic). In particular, habitual buyers have tripled to 7.1 million. "Habitual buyers" are those who've made at least six purchases totaling an aggregate of $200 over the trailing year. A growing number of habitual buyers is what's allowed Etsy to charge higher fees to its merchant base.
I'd encourage current and prospective investors not to overlook Etsy's innovative capacity, either. It's investing aggressively in improved data analytics for its merchants, has introduced video as a means to keep shoppers engaged, and is using artificial intelligence (AI) in search to improve purchasing rates.
A forecast annualized earnings growth rate of 16% over the next five years makes Etsy a stock you'll want to own.
PubMatic
A second eye-catching growth stock you'll regret not scooping up in the wake of the Nasdaq bear market swoon is adtech company PubMatic (PUBM 1.75%). Although the advertising environment has been challenging over the trailing year, a number of macro and company-specific catalysts are working in PubMatic's favor.
The first thing to note about ad-driven businesses is that time is on their side. Even though recessions are a normal and inevitable part of the economic cycle, none have lasted longer than 18 months since 1945. In comparison, periods of expansion usually stick around for multiple years. Ad-driven businesses often enjoy substantial pricing power during long-winded expansions.
What makes PubMatic such an exciting investment is that it's situated in the fastest-growing channel of the advertising industry: Digital ads.
Specifically, PubMatic's cloud-based programmatic ad platform helps publishing companies sell their digital display space. It's primarily focused on video, mobile, and connected TV programmatic ads, with the latter driving the juiciest growth rate. It's no secret that advertising dollars are steadily shifting away from billboards and print to digital channels. This should be especially true of political ads during the 2024 election cycle.
Beyond just being in the right place at the right time, PubMatic's management team also made the (in hindsight) genius decision to design and build its own cloud-based infrastructure. Not having to pay a third party is a tangible advantage as the company's revenue continues to ramp. Ultimately, this decision should help PubMatic's operating margin handily outpace most of its peers.
Lastly, PubMatic is sitting on a veritable treasure chest of capital. It closed out September with $171.4 million in cash, cash equivalents, and marketable securities, with no debt. It's ideally positioned to thrive in any economic climate.
Image source: Getty Images.
Jazz Pharmaceuticals
The third glorious growth stock you'll regret not buying with the Nasdaq Composite still attempting to recover from the 2022 bear market is biotech stock Jazz Pharmaceuticals (JAZZ 1.89%). While generic competition is always a concern for novel drug developers, Jazz's innovation and cash-flow safety are its saving grace.
The first thing to know about Jazz is that it primarily targets patients with orphan or rare diseases. Developing therapies for patients who've previously had few or no treatment options is undeniably risky. On the other hand, it's incredibly rewarding when Jazz is successful. On top of helping patients lead higher-quality lives, Jazz usually faces minimal competition in select indications, and it's able to charge high list prices without much pushback from insurers.
Jazz Pharmaceuticals' superstar drug has long been sleep disorder therapy Xyrem. But the most important thing the company did was develop a next-generation treatment with its blockbuster drug.
Xywav contains 92% less sodium than Xyrem, which makes it a smarter choice for patients with high cardiovascular risk factors. Additionally, the approval of Xywav has allowed Jazz to transition users to this new drug, thereby avoiding any concerns about generic competition for Xyrem. In other words, Jazz's ongoing innovation has helped lock in its cash flow for a long time to come.
Equally interesting is what's going on beyond Jazz's oxybate franchise of Xywav and Xyrem. Label expansion opportunities for cannabidiol-based drug Epidiolex may eventually push peak annual sales for the drug beyond $1 billion. Likewise, cancer drugs were on track to, collectively, total more than $1 billion in sales in 2023 (Jazz has yet to report its fourth-quarter operating results, as of this writing). The company has as many as five late-stage clinical readouts expected by the end of 2024, some of which include experimental oncology drugs.
Jazz is valued at roughly 6 times forward-year earnings, but is slated to grow its bottom line by an annualized average of 10% over the next five years. That makes it one heck of a bargain!
Baidu
The fourth eye-catching growth stock you'll regret not buying in the wake of the Nasdaq bear market dip is none other than the company behind China's leading internet search engine, Baidu (BIDU 0.62%). In spite of weaker-than-anticipated economic growth data out of China, Baidu is perfectly positioned to make its long-term shareholders richer.
One of the primary factors working in Baidu's favor is the reopening of China's economy. Following three years of stringent COVID-19 lockdowns, Chinese regulators shelved the controversial "zero-COVID" strategy in December 2022. Though it's going to take time to work out years of supply chain constraints, this is a critical move to restore superior growth rates for the world's No. 2 economy by gross domestic product.
Baidu's foundational operating segment continues to be its internet search engine. Based on data provided by GlobalStats, Baidu accounted for 61% of internet search share in China in December. Being the clear leader in internet search gives Baidu exceptional ad-pricing power.
However, there's more to like about Baidu than just its cash cow of a search engine. For example, the company's major AI investments can yield sustained double-digit growth rates for its non-online marketing segment.
According to estimates from tech-analysis company Canalys following the end of the first quarter of 2023, Baidu's AI Cloud was the fourth-largest cloud infrastructure services provider in China. Apollo Go is the world's leading provider of autonomous ride-hailing services, based on total number of rides since inception. AI is a sustained long-term growth driver for Baidu.
The valuation also makes a lot of sense. Baidu closed out September with north of $26 billion in cash, cash equivalents, and short-term investments, yet is currently valued at less than 10x forward-year earnings. Even taking into account the regulatory uncertainty that can accompany China stocks, this is a screaming deal.
