It has been one of the toughest years for investors in some time. The wide base S&P500 produced its worst first-half return in more than half a century, while the bond market had its worst year on record.
But it’s still not as disappointing as the one-year returns of growth-oriented companies Nasdaq Compound (^IXIC 1.88%). Since hitting an all-time high about a year ago, the Nasdaq has plunged as much as 38%. This strengthens the index which was largely responsible for pushing the market as a whole to new highs in a bear market.
Although bear markets can sometimes be scary for new and established investors, the rewards of patience can easily outweigh those fears. Over time, every major stock market decline in history has eventually been overtaken by a bull market. In other words, big drops are the perfect opportunity to do some shopping.
This is a particularly good time to go bargain-hunting for innovative growth stocks that have been shot down. Below are five mind-blowing growth stocks you’ll regret not buying during the Nasdaq bear market decline.
The first eye-popping growth stock begging to be bought during the Nasdaq bear market decline is an end-user cybersecurity specialist CrowdStrike Holdings (CRWD 5.42%). Despite growing concern among software-as-a-service (SaaS) vendors about weakening near-term demand, CrowdStrike has a few tricks up its sleeve to thrive in a tough economic environment.
First, it is important to recognize that cybersecurity is a service of prime necessity. Just because the US economy is going through a tough time doesn’t mean bots and hackers are taking time out trying to steal company and customer data. As companies move more data online and into the cloud, third-party vendors like CrowdStrike will see their role in data protection grow.
What makes CrowdStrike so special is the company’s cloud-native Falcon platform, which monitors approximately 1 trillion daily events. Falcon relies on artificial intelligence (AI) and machine learning, which means its software becomes smarter and more effective at recognizing and responding to potential threats over time. Even though CrowdStrike’s SaaS solutions aren’t the cheapest, its gross retention rate of over 98% suggests customers love the product(s).
But the real appeal of CrowdStrike is its ability to encourage existing customers to purchase additional services. Just over five years ago, less than 10% of its customers had purchased four or more cloud module subscriptions. As of July 31, 2022, 59% of its more than 19,600 customers have purchased five or more cloud module subscriptions. These add-on purchases are a recipe for supercharged subscription gross margin.
A second jaw-dropping growth stock that you will blame yourself for not buying during the Nasdaq bear market decline is furniture stock. Lovebag (TO LIKE 1.65%). Normally, a “furniture stock” would be the opposite of mind-blowing, but this company is trying to topple heavy industry.
The most obvious differentiator for Lovesac is its furniture. About 88% of its net sales come from the sale of sactionals, which are modular sofas that can be rearranged in multiple ways to fit most living spaces. Sactionals offers over 200 blanket options, with the yarn used in these blankets being made entirely from recycled plastic water bottles. It’s everything the company’s main millennial customer could want in furniture: functionality, optionality and eco-friendliness.
Another thing to note about Lovesac is that they generally target a more affluent clientele with their products. Even with inflation hitting its highest level in four decades in June, Lovesac is less likely to be affected by inflation than traditional furniture retailers.
However, the best aspect of Lovesac might be its omnichannel sales platform. It has managed to successfully pivot almost half of its online sales during the pandemic and can rely on pop-up showrooms and partnerships to boost sales. Not being tied solely to a brick-and-mortar model reduces business overhead and increases profitability.
The third jaw-dropping growth stock you’ll regret not buying as the Nasdaq plummets is a mining company Palantir Technologies (PLT 10.08%). Although Palantir left Wall Street wanting more after the release of its third quarter results, the competitive advantages offered by this company make it a solid buy for patient investors.
One of the reasons Palantir makes such a smart purchase is because its operating model is unique. Indeed, all of its revenue comes from its Gotham and Foundry platforms. Gotham is the segment of society that helps governments collect data and oversee missions. Meanwhile, Foundry works with businesses to help them manage large amounts of data to streamline their operations. What Palantir offers is not duplicated by any other company.
At the moment, Gotham is the superstar of Palantir. Large multi-year government contracts (primarily in the US) drove sustained double-digit revenue growth. In fact, 12-month government revenue (TTM) topped $1 billion for the first time in company history during the last quarter.
However, the cap for Gotham is going to be somewhat limited. For example, it is not software that can be used by people like China for security reasons. In the long run, Foundry is Palantir’s relatively untapped cash cow. Commercial revenue jumped 53% in a difficult third quarter, with the number of TTM commercial customers effectively doubling from 115 to 228. This is the segment that can make Palantir’s long-term shareholders much more rich.
A fourth phenomenal growth stock you’ll regret not recouping during the Nasdaq’s bear market decline is the social media company pinterest (PINS 4.45%). Although advertising-focused stocks were brought to the stake in 2022 due to growing concerns about the recession, Pinterest has demonstrated that it has the tools to outpace its competition.
The first thing to note about Pinterest is that its Monthly Active User (MAU) count is once again trending in the right direction. Although MAUs faltered enormously during the first pandemic lockdowns and after the COVID-19 vaccination campaign, a large-scale examination over the past five years shows relatively stable user growth to reach the current total of 445 million. of MAUs in the world.
More importantly, Pinterest has had no problem monetizing its user base whether its total user count is up or down. Even in a very challenging advertising environment, global average revenue per user (ARPU) increased 11% in the quarter ended September, with international markets (minus Europe) seeing the juiciest growth in ARPU. Pinterest has just scratched the surface with international ad revenue, and it’s pretty obvious that advertisers are willing to pay top dollar to reach the company’s 445 million MAU.
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 get a pearl on what users like, Pinterest MAUs willingly share their interests via pinned boards. This makes it easy for marketers to target their message and should help Pinterest become a force in e-commerce at some point in this decade.
The fifth and final eye-popping growth stock you’ll regret not buying during the Nasdaq bear market decline is the China-based electric vehicle (EV) maker Nio (NIO 11.80%). Despite supply chain disruptions caused by China’s zero COVID strategy and historically high inflation, Nio’s innovation shone like a bright light.
In October, Nio delivered just over 10,000 electric vehicles, marking the fifth month in a row that it exceeded the delivery level of 10,000 vehicles. Just three years ago, Nio was delivering nearly 2,500 electric vehicles per quarter. Once supply chain disruptions ease, Nio should be able to reach 50,000 electric vehicles in monthly production within about a year.
But as I noted earlier, it’s the company’s innovation that really stands out. Management thought out of the box in August 2020 when it introduced its Battery-as-a-Service (BaaS) subscription. On the one hand, BaaS lowers the initial purchase price of an electric vehicle and provides owners with the ability to charge, swap, and upgrade their batteries in the future. On the other hand, it generates high-margin recurring revenue for Nio and, most importantly, retains first-time buyers to the brand.
Nio also brings at least one new electric vehicle to market every year. The company is known for its premium and mid-range prices for SUVs and sedans, and has produced electric vehicles that offer longer range than industry leaders (with battery upgrades). Nio has the potential to lead long-term investors to considerable gains.
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