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It’s been a tumultuous four years for Wall Street. Since the beginning of this decade, all three major stock indexes have vacillated between consecutive bear and bull markets. These fluctuations are especially noticeable in growth-driven stocks. Nasdaq Composite (^IXIC -0.36%).
In 2022, the Nasdaq Composite Index lost a third of its value, making it by far the worst performer among the major indexes. It topped the charts last year with a 43% rise. However, despite this rise, the Nasdaq Composite Index is the only major stock index that has yet to hit a new all-time high. Following the 2022 bear market, it remains 4% below its November 2021 closing price record.
Image source: Getty Images.
For some investors, this 26-month lull will be seen as a lost period for growth stocks. But for long-term investors, it’s an opportunity to pick up growth stocks, innovators, and industry leaders at bargain prices.
Here are four great growth stocks you’ll regret not buying following the Nasdaq bear market decline.
paypal holdings
The first great growth stock you’ll regret not buying when the Nasdaq Composite Index is still below its all-time high is a fintech leader. paypal holdings (PYPL 1.76%). Competition in the digital payments space is fierce, but PayPal has the tools it needs to succeed.
First of all, the company is on the cutting edge of Wall Street’s hottest growth trends. According to a report by Boston Consulting Group researchers, fintech annual revenue is expected to increase sixfold between 2022 and 2030, from $245 billion to $1.5 trillion. I am. Even if this estimate is not accurate, it shows that the adoption of digital payments is still early.
Despite stagnant active account growth in recent quarters, PayPal’s user engagement in active accounts is higher than ever. In less than three years, active accounts grew from an average of 40.9 transactions in the trailing twelve month (TTM) period to an average of 56.6 transactions TTM as of September 30, 2023. did. PayPal is primarily driven by fees, which results in more transactions. The trade should correspond to a higher gross profit.
The hiring of Alex Criss as CEO marks another turning point for PayPal.Chris is coming intuition, where he headed the company’s division focused on small and medium-sized businesses. Chriss understands the innovation and opportunity that PayPal has for small sellers, but he’s not afraid to make tough choices and reduce the company’s operating expenses to strengthen margins.
Finally, PayPal’s stock is now substantially cheaper than it has ever been as a publicly traded company. As of this writing, you can buy the stock for less than 12 times his prior-year earnings. This is a great value given the company’s long-term growth prospects, industry-leading position in fintech, and aggressive stock repurchase program.
love sack
The second big growth stock you’ll regret not buying after the Nasdaq bear market stall is a furniture company. love sack (Love -0.13%). While the mere mention of a “furniture stock” is enough to put some investors to sleep, it’s safe to say that this small-cap furniture company looks nothing like its peers.
The most obvious difference between Lovesac and other furniture companies can be seen in its products. The company was originally known for its beanbag-shaped chairs (“sacks”), but now approximately 90% of its net sales come from sactionals. Suctional is a modular sofa that can be rearranged in many ways to suit most living spaces. Sactionals offers a variety of high-margin upgrade options and over 200 different cover choices. The yarn used in production is made from recycled plastic bottles. A unique and highly functional product.
Uniqueness comes at a cost and purpose. Although practical sofas are more expensive than typical sectional sofas, Lovesac intentionally targets middle-to-high income consumers with its furniture. High-income earners are less likely to change their purchasing habits during periods of moderate recessions or above-average inflation.
Another reason why Lovesac has outperformed other furniture companies is its omnichannel sales platform. Despite having physical stores in his 40 states, he relies on online sales, pop-up showrooms and partnerships with major retailers to increase brand awareness and drive sales. This omnichannel platform reduced overhead costs and increased Lovesac’s operating margins.
Like PayPal, Lovesac has historically been cheap. The stock trades at 11 times year-ago earnings, a bargain considering the company could more than triple its earnings per share over the next five years.
Image source: Getty Images.
alibaba
The third surprising growth stock you’ll regret not adding to your portfolio following the 2022 Nasdaq Composite bear market decline is an e-commerce company based in China alibaba (Baba 0.22%). Despite China’s recent weak economic indicators, it’s hard to ignore the long-term growth story and Alibaba’s valuation.
The first notable opportunity for Alibaba was the reopening of China’s economy after nearly three years of strict lockdowns due to the coronavirus pandemic. Although Chinese regulators ended its controversial zero-coronavirus mitigation strategy in December 2022, overcoming deep kinks in supply chains is taking time. If China’s economy booms again, Alibaba will definitely benefit.
Investors should also appreciate Alibaba’s leading position in e-commerce. China’s growing middle class means online retail sales have a long way to go to grow. Alibaba’s Taobao and Tmall together account for 50.8% of the e-commerce market share, making him one of the world’s largest consumer markets.
Beyond e-commerce, Alibaba is making a name for itself in the field of cloud computing. Technology analysis firm Canalys predicted Alibaba’s share of China’s cloud infrastructure services market to be 34% in the first quarter of 2023. Cloud services are a rapidly growing sector with significantly higher margins than e-commerce.
In keeping with the theme, Alibaba is cheaper than ever as a publicly traded company. Excluding restricted cash, cash, cash equivalents, short-term investments and equities totaled more than $78 billion at the end of September. By removing net cash from the equation, a company with a history of double-digit growth has a forward price-to-earnings ratio of just 5x.
Starbucks
The fourth great growth stock you’ll regret not buying following the Nasdaq bear market drop is none other than the world’s leading coffee chain Starbucks (SBUX 0.20%). Even though rising labor costs are a headwind, Starbucks has the competitiveness to buy without hesitation.
One factor working in Starbucks’ favor is the return to normalcy after the worst of the COVID-19 pandemic. Starbucks has more than 16,300 stores in the United States and more than 6,800 stores in China. Talk of reopening in China is equally important for Starbucks and companies like Alibaba.
Another thing that stands out about Starbucks is the incredible brand loyalty of its customers. In particular, Starbucks ended fiscal year 2023 (ending October 1st) with 32.6 million reward members. While the company occasionally offers perks like free food and drinks to Rewards members, Rewards members tend to spend more per ticket and are more likely to use mobile ordering than non-members. The latter speeds up the ordering process and shortens lines at Starbucks stores.
It is also a credit to Starbucks’ management for adapting to a difficult environment. The pandemic forced the company to overhaul its drive-thru lanes. Starbucks has completely revamped its ordering board, enhanced its high-margin food offering, and introduced video to make the drive-thru experience more personal.
Finally, Starbucks makes a lot of sense from a valuation perspective. The company’s forward price-to-earnings ratio of 19 times is the lowest in at least a decade and does not do justice to Wall Street’s consensus annual earnings growth forecast of nearly 17% over the next five years.
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