Things don’t always go as planned on Wall Street. Following a year where the bulls ran wild, 2022 featured the worst performance for the major U.S. stock indexes in more than a decade. The growth-stock-focused Nasdaq Composite (^IXIC -0.61%) was hit particularly hard, with a peak-to-trough loss of 38% from its 2021 high, and a 33% decline for the full year in 2022.
Although bear market declines can be scary in the short run and cause investors to question their resolve to stick around, they also tend to be short-lived. More importantly, bear markets represent bona fide opportunities to scoop up shares of amazing businesses at a discount.
With growth stocks leading the way down in 2022, innovative companies with fast-paced potential might be the smartest buys in preparation for the next bull market. Here are five unmatched growth stocks that you’ll regret not buying on the Nasdaq bear market dip.
The first distinctive growth stock you’ll be kicking yourself for not buying during the Nasdaq bear market decline is social media juggernaut Meta Platforms (META -2.12%). Despite a weaker ad-spending environment and CEO Mark Zuckerberg’s fascination with spending big on metaverse innovations, the parent company of Facebook holds clear-cut competitive advantages that make it a no-brainer buy.
While a lot of attention has been paid to the company’s metaverse ambitions — and rightly so, with Reality Labs losing $13.7 billion in 2022 — investors shouldn’t lose focus on just how profitable Meta’s social media assets are.
Meta owns Facebook, Facebook Messenger, WhatsApp, and Instagram, which are still among the most downloaded social media apps worldwide. During the December-ended quarter, 3.74 billion people visited at least one of these social sites each month. Advertisers fully understand that they’re not going to be able to reach a broader audience with any other social media company, which is why Meta can often command a premium price for ad placement.
Zuckerberg also took the hint from Wall Street and has been pulling levers where necessary to instill confidence in Meta’s management team. Specifically, the company lowered its operating expenses forecast in 2023 to a fresh range of $89 billion to $95 billion, which is down from a prior forecast of $94 billion to $100 billion. What’s more, the company’s board authorized up to $40 billion in share repurchases.
Meta is a company poised to dominate when the U.S. and global economy are expanding. At roughly 20 times earnings in 2023, it’s an absolute bargain.
A second unique growth stock you’ll be wishing you’d bought during the Nasdaq bear market dip is cybersecurity company Okta (OKTA -1.00%). Even though Okta’s fiscal 2023 operating performance has been less than stellar, thanks in part to Auth0 integration issues, the company’s future is as bright as ever.
On a macro basis, it should benefit from the growing need for identity verification solutions. In the wake of the pandemic, businesses have been moving their data online and into the cloud at an accelerated pace. This is providing more opportunity than ever for third-party providers like Okta to step up.
What’s helping Okta stand out from its competitors is its cloud-native identity verification platform. Since it’s built in the cloud, it’s nimbler than on-premises security solutions at recognizing and responding to possible threats. It’s pretty evident that clients have faith in Okta’s identity cloud platforms, otherwise its subscription backlog wouldn’t have grown to $2.85 billion (up 21% year over year), as of Oct. 31, 2022.
The other big catalyst for Okta is the aforementioned Auth0 acquisition, which was completed in February 2022. Despite higher-than-anticipated integration costs, these one-time expenses shouldn’t be a factor in fiscal 2024 (most of calendar year 2023). A cleaner income statement that pushes toward recurring profitability would be a big deal.
Furthermore, Auth0 gives Okta international exposure and solidifies its position as a customer identity verification leader. While Okta isn’t as “cheap” as Meta on a fundamental basis, it can deliver a sustainably higher growth rate for years to come.
The third unmatched growth stock begging to be bought as the Nasdaq plunges is China-based e-commerce stock JD.com (JD -5.70%). Although China stocks come with their own unique set of risks, the reward at this reduced share price looks well worth it.
The biggest risk China stocks have faced over the past three years is the Chinese government’s COVID-19 mitigation efforts. For years, China employed stringent (and unpredictable) lockdowns that disrupted economic activity and supply chains. With China now abandoning its zero-COVID strategy, one of the faster-growing large economies in the world will be allowed its stretch its legs once more. That’s fantastic news for a company that generates most of its revenue from selling goods online.
Another reason JD.com is so intriguing is its operating model. Though Alibaba is the big fish in China’s e-commerce space, it’s predominantly dependent on third-party marketplaces. On the other hand, JD has an operating structure that’s similar to Amazon. While it does generate a small percentage of total sales from third-party marketplaces, most of its revenue comes from direct-to-consumer (DTC) sales, where it controls inventory and logistics. The advantage of DTC online sales is that they give JD more control over its expenses and operating margin. As China’s economic activity ramps back up, JD could really see its bottom line explode higher.
However, JD isn’t solely an e-commerce company. Its ancillary operations, such as JD Logistics, JD Health, and Dada, which focuses on same-day/one-hour deliveries, are growing rapidly and may, in the not-so-distant future, provide a hearty margin boost.
With double-digit sales growth back on the table, JD.com looks mighty attractive.
Green Thumb Industries
A fourth unsurpassed growth stock you’ll regret not scooping up on the Nasdaq bear market drop is U.S. marijuana stock Green Thumb Industries (GTBIF 5.28%). Even though Capitol Hill has failed at every attempt to legalize cannabis nationwide or reform marijuana banking laws, Green Thumb has a growth strategy in place that’s allowing it to handily outperform its peers.
When December began, Green Thumb had 77 operating dispensaries, with products being distributed in 15 states. It has enough retail licenses in its proverbial back pocket to effectively double its retail presence, and has grown from just $7 million in full-year sales to an expectation of more than $1 billion in annual sales in just six years.
Though it’s sensibly been planting its flag in some of the highest-dollar markets, such as California, Colorado, and medical marijuana-legal Florida, it’s the company’s push into a number of limited-license states (Illinois, Ohio, Massachusetts, Pennsylvania, and Virginia) that’s noteworthy. Markets where regulators limit retail license issuance allow newer players a fair shot at building up brand awareness and gaining loyal customers.
Equally important is Green Thumb Industries’ revenue mix. Well over half of its net sales come from derivatives, such as edibles, vapes, and beverages. While most folks associate the marijuana industry with dried cannabis flower, it’s derivative pot products that produce the best margins. Leaning on these high-margin derivatives has helped the company deliver nine consecutive quarters of generally accepted accounting principles (GAAP) profit.
Even if Washington fails, once again, to pass any meaningful cannabis banking reforms this year, Green Thumb can still excel.
The fifth and final unmatched growth stock you’ll regret not buying on the Nasdaq bear market dip is fintech stock Block (SQ -1.25%), the company formerly known as Square. Despite reduced trading activity in Bitcoin taking the shine off Block’s top-line growth in 2022, a strong foundation has been laid with the company’s two core operating segments.
Its tried-and-true segment is its Square ecosystem, which provides point-of-sale solutions, loans, and data analytics to merchants. In 2012, the Square ecosystem had $6.5 billion in gross payment volume (GPV) traverse its network. Based on third-quarter GPV, the Square ecosystem has an annual run-rate of $200 billion in GPV. Since this is a usage-based network, more transactions and more GPV should lead to higher gross profit.
To build on this point, the Square ecosystem has seen a big uptick in larger merchants using its solutions. In the September-ended quarter, roughly 40% of the $50 billion in GPV originated from businesses with at least $500,000 in annualized GPV. That’s up nine percentage points from the comparable quarter two years prior. Bigger merchants utilizing Square is an easy way for Block’s gross profits to climb.
However, most of the buzz on Wall Street has to do with the growth of digital peer-to-peer payment platform Cash App. When 2018 came to a close, there were about 7 million active Cash App users. As of Sept. 30, 2022, there were more than 49 million. Digital transactions are still in the very early stages of growth, which gives Cash App a real chance to become Block’s leading cash-flow driver by mid-decade.
With sales growth expected to reaccelerate across the board in 2023 (and beyond), Block could easily regain its luster.