Despite what 2021 may have led you to believe, the stock market is not going up in a straight line. Since hitting its within-day high in the first week of January, the benchmark S&P 500 has seen a peak-to-fall of 28%. To make matters worse, the bond market is having its worst year on record.
But it was even worse for the tech-driven Nasdaq Composite (^IXIC 1.28%), which has fallen firmly into a bear market, peaking at 38% in less than a year. When uncertainty arises, it is not uncommon for companies with high valuation premiums to take it upon themselves.
Yet therein lies the opportunity. Just as optimism during prolonged bull markets can cause stock valuations to skyrocket, pessimism during bear markets is known to create great buying opportunities for patient investors. What follows are five awesome growth stocks you’ll regret not buying during the Nasdaq bear market dip.
The first great growth stock investors to regret not having gained during the bear market decline is FAANG giant Amazon (AMZN 1.88%). While Amazon’s retail segment faces all sorts of headwinds as the likelihood of a US recession mounts, the business segments with the highest margins are firing on all cylinders.
Amazon’s claim to fame has long been the clearly dominant online marketplace. The company’s 14 closest competitors aren’t even close to Amazon’s own online retail market share. However, online retail sales are generating very low margins. This means that Amazon’s main source of income does not play a critical role in generating operational cash flow.
Most importantly for Amazon, the trio of Amazon Web Services (AWS), subscription services, and high-margin advertising services continue to grow. AWS is the world’s leading provider of cloud infrastructure services, and enterprise cloud spending is probably still in its infancy. Meanwhile, the company has used the popularity of its online marketplace as a catalyst to sign up more than 200 million Prime members worldwide. All three of these higher margin operating segments continue to grow sales at a double-digit percentage.
Since Amazon is a company that reinvests most or all of its operating cash flow, it pays to keep an eye on the company’s cash flow. Throughout the 2010s, investors willingly paid 23 to 37 times the year-end cash flow to own Amazon stock. You can buy shares today for about eight times Wall Street’s projected cash flow for the company in 2025. That’s not expensive for such a pioneering company.
A second phenomenal growth stock begging to be bought as the Nasdaq plummets is furniture stock Lovesac (LOVE 2.54%). Despite Wall Street dropping shares amid rising stock levels, all indications and innovations continue to point to Lovesac as a long-term winner.
The most important thing investors get with Lovesac is differentiation. Traditional furniture retailers rely on brick and mortar stores and source their products from a small number of wholesalers. Meanwhile, Lovesac generates about 88% of net sales from ‘sactionals’, modular sofas that can be rearranged in dozens of ways to fit most living spaces. Sactionals come with over 200 covers, can be ordered with multiple high-margin add-ons (e.g., surround sound systems), and the yarn used in these covers is made entirely from recycled plastic water bottles. No furniture retailer can match the functionality and eco-friendly aspect of Lovesac’s furniture.
In addition, Lovesac’s modestly higher prices target a more affluent consumer. This makes it less likely that the company will be adversely affected by small economic downturns and rapidly rising inflation.
The other notable catalyst is Lovesac’s omnichannel sales platform. During the pandemic, it was able to move nearly half of its sales online. Having multiple opportunities to sell its products outside of brick-and-mortar stores has helped reduce overheads and make the company profitable far above Wall Street’s expectations.
The third awesome growth stock that you’ll regret not making in the Nasdaq bear market dip is the semiconductor stock Broadcom (AVGO 4.77%). While cyclical stocks like Broadcom are almost always subject to economic weakness, Broadcom has a few factors that should help it weather a potential recession better than its competitors.
The main growth driver for Broadcom is the continued shift to 5G wireless infrastructure. It’s been about a decade since telecom providers upgraded their wireless infrastructure to support faster download speeds. The move to 5G should entice businesses and consumers to trade in their older devices to take advantage of superior download speeds. Broadcom generates the majority of its revenue from wireless chips and accessories used in next-generation smartphones.
Another reason investors can trust Broadcom is the company’s historically high order book. The company entered 2022 with $14.9 billion in orders to fulfill and, according to CEO Hock Tan, booked well into 2023. If demand for chips slows, Broadcom will have a substantial cushion to fall back on thanks to the backlog. fall.
There are also enticing opportunities for Broadcom beyond its bread-and-butter smartphone segment. For example, the pandemic has accelerated the pace at which companies move data to the cloud. That should sustain demand for all things data center. Broadcom is a manufacturer of connectivity and access chips used in data center servers.
U.S. marijuana stock Cresco Labs (CRLBF 1.26%) is a fourth stellar growth stock that you’ll be kidding yourself for not buying it during the Nasdaq bear market decline. Even with cannabis reform legislation failing on Capitol Hill, a plethora of state-level legalizations provides more than enough catalysts for multi-state operators (MSOs) like Cresco.
By mid-October, Cresco had 54 dispensaries in operation in 10 legalized states. While it has a decent presence in medical marijuana-legal Florida (20 dispensaries and still is), Cresco’s strategy of targeting limited-license states such as Illinois, Ohio, Pennsylvania, and Massachusetts has been shrewd. Restricted license states purposely limit the number of retail licenses issued in total, as well as to a single company. In other words, these are states where newcomers like Cresco Labs have a good chance of building their brands and gaining a loyal following.
To build on this, Cresco is nearing completion of a major acquisition. It will acquire MSO Columbia Care in an all-share deal that will increase the combined company’s operating pharmacies to more than 130 and expand its presence to 18 states.
However, it is Cresco’s cannabis wholesale business that really helps the company stand out in an increasingly crowded cannabis market. While cannabis wholesale is generating lower margins than retail, Cresco has volume on its side. It has a lucrative cannabis distribution license in California and can place its own brands in more than 575 retail locations. The Golden State is the largest marijuana market in the country in terms of annual sales.
The fifth awesome growth stock you’ll regret not buying in the Nasdaq bear market dip is cloud-based CRM software vendor Salesforce (CRM -4.48%). While rapidly rising interest rates are dampening the macro-growth outlook for the US economy, Salesforce’s competitive advantages make it a no-brainer purchase after the significant slump.
For those unfamiliar, CRM software is used by consumer-oriented companies to drive sales from existing customers. The goal is to improve existing customer relationships by quickly solving problems, performing predictive analytics to determine which customers can buy a new product or service, or by using CRM for online marketing campaigns.
Salesforce is the CRM hub. According to an IDC report, Salesforce accounted for nearly 24% of global CRM spend in 2021 and its share has grown consistently in each of the past five years. Like Amazon’s dominance, Salesforce holds more CRM share than its four closest competitors combined. This makes it highly unlikely that it will soon be dethroned as the No. 1 player in this ongoing double-digit opportunity.
As I recently noted, Salesforce has done a great job of incorporating inorganic growth into its formula for success. Co-founder and co-CEO Marc Benioff has overseen the acquisitions of MuleSoft, Tableau Software and Slack Technologies, among others. These deals provide new revenue channels and cross-selling opportunities and help expand the Salesforce ecosystem.
If Salesforce can reach Benioff’s goal of $50 billion in annual revenue by fiscal 2026 (calendar year 2025), it will be an incredible bargain for investors buying at the current stock price.