This has been one of the most difficult years overall for investors in quite some time. The broad base S&P500 posted its worst first-half return in more than half a century, while the bond market posted its worst year on record.
But that’s still not as disappointing as the trailing one-year returns for growth-oriented companies Nasdaq Composite (^IXIC 1.88%). Since hitting an all-time high about a year ago, the Nasdaq has fallen as much as 38%. This bolsters the index, which has been instrumental in propelling the broader market to new highs in a bear market.
Although bear markets can sometimes be scary for new and established investors alike, the rewards of patience can easily outweigh those fears. Over time, every major stock market decline throughout history was eventually swept away by a bull market. In other words, big declines are the ideal opportunity to buy.
It’s a particularly good time to bargain-hunt for innovative growth stocks that have been knocked off. What follows are five mind-blowing growth stocks you’ll regret not buying during the Nasdaq bear market slump.
The first stunning growth stock to look for during the Nasdaq bear market bear market is the end-user cybersecurity specialist CrowdStrike Holdings (CRWD 5.42%). Despite growing concerns among software-as-a-service (SaaS) providers that near-term demand may slack, CrowdStrike has tricks up its sleeve to thrive in a challenging economic environment.
First of all, it is important to recognize that cybersecurity is a fundamental necessity. Just because the US economy is going through a rough patch doesn’t mean that robots and hackers take the time to steal company and customer data. As organizations move more and more data online and in the cloud, third-party providers like CrowdStrike will increase their role in data protection.
What makes CrowdStrike special is the company’s cloud-native Falcon platform, which monitors around 1 trillion events every day. Falcon uses artificial intelligence (AI) and machine learning, which means its software gets smarter and more efficient over time to detect and respond to potential threats. Although CrowdStrike’s SaaS solutions aren’t the cheapest, the gross retention rate of more than 98% indicates that customers like the product(s).
But CrowdStrike’s real appeal is its ability to encourage existing customers to purchase additional services. A little over five years ago, less than 10% of customers had purchased four or more cloud module subscriptions. As of July 31, 2022, 59% of the 19,600+ customers had purchased at least five cloud module subscriptions. These add-on purchases are a recipe for inflated subscription gross margin.
A second stunning growth stock that will have you kicking your butt for not buying during the Nasdaq bear market slump is furniture stocks love sack (LOVE 1.65%). Normally, a “furniture stock” would be the opposite of overwhelming, but this company is trying to turn a sluggish industry on its head.
The most obvious differentiator for Lovesac is its furniture. Approximately 88% of net sales come from the sale of Sactionals, modular sofas that can be rearranged in a variety of ways to fit most living spaces. Sactionals has over 200 cover options, with the yarn used in these covers being made entirely from recycled plastic water bottles. It’s everything the company’s core millennial customer could want from furniture: functionality, optionality and eco-friendliness.
Another thing to note about Lovesac is that it tends to target a more affluent clientele with its products. Even if inflation hit a four-decade high in June, Lovesac is likely to be less affected by inflation than traditional furniture retailers.
However, perhaps the best aspect of Lovesac is its omnichannel sales platform. The company has successfully shifted almost half of its sales online during the pandemic and can rely on pop-up showrooms and partnerships to boost sales. Not being tied to just one stationary model reduces company overhead and increases profitability.
The third stunning growth stock you won’t regret buying while the Nasdaq plunge is a data mining company Palantir Technologies (PLTR 10.08%). While Palantir may have left Wall Street wanting more after the release of its third-quarter results, the competitive advantages this company offers make it a rock-solid buy for patient investors.
One of the reasons Palantir makes such a smart purchase is that its operating model is unique. In fact, all revenue comes from the Gotham and Foundry platforms. Gotham is the segment of the company that helps governments collect data and monitor missions. Meanwhile, Foundry works with companies to help them manage big data to streamline their operations. What Palantir offers is unmatched by any other company.
At the moment, Gotham is Palantir’s superstar. Large, multi-year government contracts (primarily in the US) have resulted in continued double-digit sales growth. In fact, for the first time in the company’s history, government revenue on a trailing 12 month (TTM) basis exceeded $1 billion in the most recent quarter.
However, the cap for Gotham will be somewhat limited. For example, it’s not software that can be used by the likes of China due to security concerns. Over the long term, Foundry is Palantir’s relatively untapped cash cow. Commercial revenue grew 53% in a challenging third quarter, with TTM commercial customers effectively doubling from 115 to 228. This is the segment that can make long-term Palantir shareholders much wealthier.
A fourth phenomenal growth stock you’ll regret not buying during the Nasdaq bear market downtrend is a social media company Pinterest (PINS 4.45%). Though ad-driven stocks have been put in the woodshed in 2022 due to growing recession worries, Pinterest has shown it has the tools to outperform its competition.
The first thing to note about Pinterest is that the number of monthly active users (MAU) is once again moving in the right direction. Although MAUs have fluctuated wildly during the initial pandemic lockdowns and following the COVID-19 vaccination campaign, a foresight over the past five years shows relatively steady user growth to the current total of 445 million MAUs worldwide.
More importantly, Pinterest has had no problem monetizing its user base whether the total number of users has gone up or down. Even in a very difficult advertising environment, global average revenue per user (ARPU) rose 11% in the quarter ended September, with international markets (excluding Europe) delivering the juiciest ARPU growth. Pinterest has only just scratched the surface of international ad revenue, and it’s pretty obvious that advertisers are willing to pay top dollar to reach the company’s 445 million MAUs.
As a shareholder, I really like Pinterest’s operating model, which is designed to support an e-commerce marketplace. While most social media sites rely on likes or other data-tracking solutions to find out what users like, Pinterest’s MAUs are more than willing to share their interests via bulletin boards. This makes it easy for merchants to target their messaging, and should help Pinterest become a driving force in e-commerce sometime this decade.
The fifth and final overwhelming growth stock you’ll regret not buying during the Nasdaq bear market plunge is the China-based electric vehicle (EV) maker. no (NOK 11.80%). Despite supply chain disruptions caused by China’s zero-COVID strategy and historically high inflation, Nio’s innovation has shone like a bright light.
In October, Nio delivered just over 10,000 electric vehicles, marking the fifth straight month that it surpassed 10,000 vehicle deliveries. Just three years ago, Nio was delivering almost 2,500 electric vehicles per quarter. Once supply chain disruptions ease, Nio should be able to reach monthly production of 50,000 electric vehicles within about a year.
But as I mentioned, it’s the company’s innovation that really stands out. Management thought outside the box in August 2020 when it launched its Battery-as-a-Service (BaaS) subscription. On the one hand, BaaS lowers the purchase price of an electric vehicle and offers owners the possibility to charge, replace and upgrade their batteries in the future. On the other hand, it generates high-margin recurring revenue for Nio and, importantly, keeps early buyers loyal to the brand.
Nio has also launched at least one new electric vehicle every year. Known for its premium and mid-tier prices for SUVs and sedans, the company has produced electric vehicles that offer superior range (with battery pack upgrades) to industry leaders. Nio has the potential to lead long-term investors to sizeable gains.