One of the few guarantees for investors on Wall Street is short-term unpredictability. Although the stock market has been a genuine wealth-building machine over extended periods, the year-to-year performance of the major stock indexes is no more predictable than a coin flip.
Since this decade began, the major stock indexes traded off bear and bull markets in successive years. These swings were especially pronounced in the growth stock-driven Nasdaq Composite (^IXIC 0.33%), which shed 33% of its value during the 2022 bear market, but has rocketed higher by 49% since the start of 2023.
Image source: Getty Images.
But as of the closing bell on Feb. 21, 2024, the Nasdaq Composite was the only one of the three major stock indexes to have not put the 2022 bear market fully in the rearview mirror. This growth-fueled index remained 3% below its all-time high, set in November 2021.
Although some traders may view a 3% decline over a span of 27 months as a lost period for fast-paced companies, long-term investors are liable to see this decline as an opportunity. As long as the Nasdaq remains in the wake of the 2022 bear market and hasn't reached a new record close, bargains can still be found.
What follows are four exhilarating growth stocks you'll regret not buying in the wake of the Nasdaq bear market dip.
The first exciting growth stock you'll be kicking yourself for not buying with the Nasdaq Composite still attempting to put the 2022 bear market in the back seat is social media company Pinterest (PINS +2.04%).
NYSE: PINS
Key Data Points
One of the biggest knocks against Pinterest by skeptics had been its lack of monthly active user (MAU) growth following the worst of the COVID-19 pandemic. When people were effectively stuck in their homes during the early stages of the pandemic, MAUs soared. When vaccines became available and life returned to some semblance of normal, the company's MAUs retraced. During the December-ended quarter, Pinterest tallied 498 million MAUs, which is an all-time high. Despite a wild couple of years, Pinterest has shown that its platform is resonating with more people than ever.
What's been particularly noteworthy about Pinterest's operating model is the resilience of its ad-pricing power. Although a 1% increase in average revenue per user (ARPU) in 2023 is a far cry from the double-digit ARPU growth it's consistently delivered, it's nevertheless impressive that ARPU is still climbing considering how challenging the advertising environment has been.
Perhaps the best aspect of Pinterest's operating model is that its 498 million MAUs willingly share their interests with the company, which provides critical data that advertisers/merchants can rely on to target users. Even though app developers have been giving users the option to remove tracking tools, they're not nearly as important for Pinterest.
Based on Wall Street's consensus estimate, Pinterest is expected to double its adjusted earnings per share (EPS) to north of $2 by 2027. Assuming it continues to develop its e-commerce ambitions, this represents an attractive valuation for a leading (and continually growing) social platform.
NYSE: AZO
Key Data Points
AutoZone
A second exhilarating growth stock you'll regret not adding to your portfolio in the wake of the Nasdaq bear market swoon is auto parts retailer AutoZone (AZO +0.21%).
The first factor working in AutoZone's favor is that Americans are hanging on to their vehicles longer than ever before. Last year, S&P Global subsidiary S&P Global Mobility noted the average age of the 284 million vehicles currently registered in the U.S. is 12.5 years. Rapidly rising prices for new vehicles, coupled with tight supply (partly due to the pandemic), have encouraged owners to hang on to their existing vehicles for a lengthier period. That's excellent news for auto parts suppliers like AutoZone, which are helping owners keep their older cars running well.
AutoZone's operating success is also a reflection of its innovation on the supply chain front. A few years ago, management chose to add 20 "mega hubs" to its distribution network. These mega hubs carry up to 110,000 stock keeping units (SKUs), and they're designed to be centrally located to ensure that stores can quickly access the part(s) they need.
Another reason growth investors can trust AutoZone is its virtually unbeatable share repurchase program. While Apple may have the largest nominal-dollar buyback program among public companies, AutoZone's aggregate repurchases put it in a class of its own. Since initiating a stock repurchase program in 1998, the company's board has authorized $37.7 billion in share repurchases. Through Nov. 18, 2023, the company had bought back $35.3 billion worth of its stock, which represents 89% of its outstanding shares since 1998.
With forecast annualized earnings growth of 11% over the coming five years, AutoZone remains a bargain.
Image source: Getty Images.
Jazz Pharmaceuticals
The third stirring growth stock you'll be mad at yourself for overlooking following the 2022 bear market drop for the Nasdaq Composite is specialty drug developer Jazz Pharmaceuticals (JAZZ 0.04%).
One of the best aspects of investing in healthcare stocks is that the sector is highly defensive. Demand for prescription drugs and healthcare services doesn't cease just because the U.S. economy isn't growing as quickly, or following a rough couple of weeks for Wall Street. Consistency of demand for Jazz's novel therapies leads to predictable, high-margin operating cash flow in virtually any economic climate.
For quite some time, Jazz's oxybate franchise (Xyrem and Xywav) has been powering its growth. These are therapies that treat a variety of sleep disorders, including narcolepsy. The genius move Jazz made was to develop Xywav, which is a second-generation treatment that contains 92% less sodium than Xyrem, a drug that's topped $1 billion in annual sales. Xywav's reduced sodium content makes it a safer alternative for patients with potential cardiovascular issues, and it more importantly protects the company's cash flow from generic competition for a long time to come.
In addition to its oxybate franchise, Jazz is seeing the needle point decisively higher for its oncology portfolio and cannabidiol drug Epidiolex. Label expansion opportunities for Epidiolex could push peak annual sales of the drug to more than $1 billion. Meanwhile, organic growth of existing cancer therapies and an expanding pipeline should lift annual oncology sales well past $1 billion.
In terms of valuation, Jazz Pharmaceuticals is tough to top among drug developers. Annual earnings growth is expected to average 10% over the coming five years. However, shares of Jazz can be scooped up for just a little over 6 times forecast EPS in 2025.
NASDAQ: SBUX
Key Data Points
Starbucks
A fourth exhilarating growth stock you'll regret not buying in the wake of the Nasdaq bear market dip is global coffee chain Starbucks (SBUX 0.78%).
What's made Starbucks such an incredible investment for decades is the exceptional loyalty of its customers. As of the end of 2023, 34.3 million people were Starbucks rewards members, which was up 13% from the prior-year period. On average, rewards members spend more per ticket than non-members, and they're also likelier to use mobile ordering, which expedites the ordering process and keeps Starbucks' stores operating efficiently.
Something else working in Starbucks' favor is its innovation. During the COVID-19 pandemic, Starbucks had to completely rethink drive-thru lanes given that many of its stores were closed. The addition of video to the ordering board made drive-thru transactions more personal, while food and drink pairing suggestions on drive-thru menus represented an easy way to increase ticket size and lift margins.
I'd be remiss if I didn't also mention Starbucks is perfectly positioned to benefit from the expansion of China's economy. The world's No. 2 economy by gross domestic product only abandoned its stringent COVID-19 mitigation measures in December 2022. As supply chain kinks are worked out and China's economy finds its footing, Starbucks' nearly 7,000 stores located there should benefit.
Lastly, Starbucks' stock is as cheap as it's been in at least a decade. Shares are valued at 20 times forward-year earnings, yet Wall Street anticipates average annual earnings growth of 16% over the next five years. Considering how strong Starbucks' branding and pricing power are, this is an exceptional deal for patient growth-seeking investors.
