When looked at over multiple decades, it’s difficult to find a more consistent moneymaker than the stock market. But over shorter time frames, Wall Street has proved highly unpredictable.
Since the start of 2020, all three major stock indexes have teetered back and forth between bull and bear markets. These swings have been particularly noteworthy for the growth-focused Nasdaq Composite (^IXIC 2.05%), which shed 33% of its value during the 2022 bear market and in 2023 has gained 30% on a year-to-date basis through Nov. 8.
Despite this sizable bounce, the Nasdaq Composite remains 15% below its record-closing high set two years ago. Though some investors will view this two-year stretch with disappointment, long-term investors see opportunity. That’s because every major decline in the Nasdaq Composite has eventually been pushed aside by a bull market rally.
In other words, it means stock market corrections and bear markets are the ideal time for investors to put their money to work in discounted growth stocks.
What follows are four first-in-their-class growth stocks you’ll regret not buying in the wake of the Nasdaq bear market dip.
The first premier growth stock that’s begging to be bought with the Nasdaq Composite still markedly below its all-time high is the world’s leading payment processor, Visa (V 1.49%). Though its business is cyclical, and a couple of economic indicators are pointing to an increased likelihood of a U.S. recession, it possesses well-defined competitive edges that make it a stock to own for years to come, if not decades.
Before getting into specifics about Visa, it’s important to recognize that the economic cycle isn’t the same on both sides of the coin. Whereas only three of 12 U.S. recessions following World War II have lasted at least 12 months (and none have surpassed 18 months), the vast majority of expansions have endured multiple years.
A company like Visa that thrives when consumer and enterprise spending is increasing should have no trouble growing in lockstep with the U.S. and global economy over the long run.
One of the reasons Visa is the payment-processing kingpin is its U.S. market share. Based on annual reports from the four major payment processors in the U.S. in 2021, Visa accounted for close to 53% of credit-card network purchase volume. The next-closest company was 29 percentage points behind Visa. The U.S. is the largest market for consumption globally, and this is unlikely to change anytime soon.
There’s ample opportunity for Visa abroad, as well. It pushed further into Europe with the acquisition of Visa Europe in 2016, and has a multidecade runway to organically expand its payment infrastructure into chronically underbanked emerging markets in Southeast Asia, Africa, and the Middle East.
But perhaps the most-overlooked reason for Visa’s success is its avoidance of lending. By strictly focusing on payment facilitation, the company avoids any direct pain associated with credit delinquencies and loan losses during economic downturns. Not having to set aside capital for potential loan losses during a recession is invaluable.
Another first-in-its-class growth stock that you’ll regret not scooping up in the wake of the Nasdaq bear market swoon is furniture retailer Lovesac (LOVE -1.53%). While a very minor accounting snafu has caused some investors to be leery of Lovesac in the short term, the company’s long-term catalysts are undisturbed.
Most furniture retailers are slow-growing businesses that are heavily reliant on foot traffic into their brick-and-mortar stores. The relatively tiny Lovesac is completely changing this vision, and it all starts with the company’s furniture.
The bulk of Lovesac’s sales (nearly 90%) derives from “sactionals,” modular couches that can be rearranged dozens of ways to fit most living spaces.
The beauty of sactionals, beyond their functionality, is their optionality. There are more than 200 different covers to choose from, and an abundance of upgrade options (e.g., built-in surround sound). And the yarn used in their production is made entirely from recycled plastic water bottles. It’s a unique product that stands out in a competitive space where differentiation is tough to come by.
Though sactionals are pricier than a traditional sectional couch, Lovesac has succeeded by targeting a more-affluent clientele. Middle- and upper-income consumers are less likely to alter their spending habits during minor economic disruptions, which should, in theory, help Lovesac weather inevitable downturns better than its peers.
However, the top selling point for Lovesac is its omnichannel sales platform. While it does have a physical-store presence in 40 U.S. states, it’s the company’s direct-to-consumer platform, pop-up showrooms, and brand-name partnerships that are driving brand recognition, lowering overhead expenses, and lifting margins. Furniture may be a traditionally “boring” industry, but Lovesac has the ability to sustain a double-digit growth rate.
The third unequaled growth stock you’ll be kicking yourself for not adding in the wake of the Nasdaq bear market decline is biotech Vertex Pharmaceuticals (VRTX 1.38%). Although skeptics have focused on Vertex’s highly concentrated revenue stream, it has a laundry list of catalysts working in its favor.
Before digging into company specifics, I believe it’s crucial to note that healthcare is a highly defensive sector. We don’t get the liberty of choosing when we become ill or what ailment(s) we develop. Demand for prescription drugs, medical devices, and healthcare services is relatively inelastic in any economy. For a drug developer like Vertex, it means unbeatable cash-flow consistency.
What’s made Vertex such a winner is its success in helping patients with cystic fibrosis (CF), a genetic disease that can obstruct a patients’ lungs and/or pancreas. The company has developed four generations of approved, mutation-specific CF therapies, and it’s currently working on a fifth.
Combination therapy Trikafta, which targets the most-common CF mutation, is on pace to reach in excess of $9 billion in annual run-rate sales.
At the moment, Vertex is the only drug developer with meaningful success in improving quality of life for CF patients. But this doesn’t mean it isn’t tackling other indications.
Experimental gene-editing drug exa-cel, which was developed in collaboration with CRISPR Therapeutics, has two Food and Drug Administration review dates upcoming for severe sickle cell disease and transfusion-dependent beta thalassemia. If approved for both indications, exa-cel has the ability to top $1 billion in peak annual sales later this decade.
Vertex also has a treasure chest in cash. It closed out the September quarter with $13.6 billion in cash, cash equivalents, and marketable securities — more than enough capital to fund ongoing research, fuel collaborations, and perhaps even foster acquisitions that diversify its product portfolio.
The fourth first-in-its-class growth stock you’ll regret not buying in the wake of the Nasdaq bear market dip is cybersecurity company CrowdStrike Holdings (CRWD 2.91%). Even though growth concerns persist for the U.S. economy, CrowdStrike is perfectly positioned to thrive over the long term.
The key factor that makes CrowdStrike tick is its Falcon security platform, which is cloud-native and reliant on artificial intelligence (AI) and machine-learning technology. Every week, Falcon oversees trillions of events for end users, and in doing so, it becomes smarter and more efficient at recognizing and responding to threats.
In particular, two key performance indicators demonstrate just how powerful Falcon is within the cybersecurity space. The first is the company’s 98% gross retention rate. CrowdStrike’s end-user security solutions are far from the cheapest available. But a 98% gross retention rate, which is up from less than 94% six years ago, shows that businesses are willing to pay more for a superior product.
The other metric of interest is the percentage of existing clients that have purchased five or more cloud-module subscriptions. When CrowdStrike first began reporting this statistic six years ago, only a single-digit percentage of its clients had purchased four or more cloud-module subscriptions. As of its latest quarter, 63% of its subscribers had purchased five or more cloud subscriptions.
The company’s subscribers are continuing to add on to their original purchase, which has pushed its adjusted subscription gross margin to 80% through the first half of the current fiscal year.
Lastly, investors should note that cybersecurity is practically a necessity. Hackers and robots don’t take time off from trying to steal sensitive data just because U.S. economic growth slows down or Wall Street has a bad day. This consistency of demand yields steady operating cash flow in any environment for CrowdStrike.