Last year was, unquestionably, one of the toughest for investors in some time. The benchmark S&P 500 produced its worst first-half return in 52 years and ultimately ended the year down 19% (its worst performance since 2008).
But it’s the growth-driven Nasdaq Composite (^IXIC 2.56%) that really took it on the chin. The Nasdaq plummeted into a bear market in 2022, with a full-year decline of 33% and a peak drop from its November 2021 all-time high of 38%.
While declines of this magnitude in the major U.S. stock indexes are known to weigh on investors, they’re also the ideal time to invest. Even though we’ll never know precisely when a bear market will occur, how long it’ll last, or steep the drop will be, we do know that every bear market throughout history was eventually put into the rearview mirror by a bull market rally. In other words, bear markets provide a unique opportunity for patient investors to buy innovative businesses at a discount.
With growth stocks getting hit hardest by the 2022 bear market, they represent the most logical place for investors to put their money to work. What follows are five phenomenal growth stocks you’ll regret not buying on the Nasdaq bear market dip.
The first incredible growth stock you’ll be kicking yourself for not buying during the Nasdaq bear market drop is social media kingpin Meta Platforms (META 2.43%). While there’s no sugarcoating that Meta had an awful 2022, skeptics appear to have overshot to the downside for a clearly dominant company.
Despite the company shifting its long-term focus to metaverse investments — the metaverse being the 3D virtual world where connected users can interact with each other and their environments — it’s important to note just how much of a leader Meta is in the social media arena. Meta-owned assets Facebook, WhatsApp, Instagram, and Facebook Messenger are consistently among the most-downloaded apps worldwide. In the September-ended quarter, these apps collectively drew in more than 3.7 billion unique monthly active users, which is more than half the world’s adult population.
More than 98% of Meta’s revenue currently comes from advertising, which is cyclical and susceptible to a downturn when economic growth slows. However, recessions and economic slowdowns don’t last very long. Comparatively, periods of economic expansion are measured in years. Advertisers are well aware that Meta’s social media assets offer them the best chance to get their message to as many people as possible. As such, Meta should command superior ad-pricing power more often than not.
The company’s metaverse ambitions are also exciting. Even though metaverse segment Reality Labs is costing the company a small fortune at the moment, Meta had $31.9 billion in net cash, cash equivalents, and marketable securities at the end of the third quarter, and its ad business is highly profitable. In short, Meta has the financial flexibility to make these investments in its future.
A second exceptional growth stock that’s begging to be bought as the Nasdaq plunges into a bear market is adtech stock PubMatic (PUBM 1.77%). Just in case you thought Meta Platforms was the only ad-driven stock unfairly beaten down by the 2022 bear market, I’m going to drive home the point that innovative ad stocks are a bargain right now.
PubMatic operates in the programmatic ad space and is a cloud-based sell-side platform (SSP). In English, this means PubMatic helps publishing companies sell their digital display space to advertisers. Since there’s been a lot of consolidation among SSPs in recent years, PubMatic has less competition to contend with.
PubMatic finds itself at the center of the fastest-growing trend within the advertising space. As businesses shift their ad dollars from print to digital channels, such as video, mobile, over-the-top, and connected TV (CTV), PubMatic is perfectly positioned to benefit. Thanks to its strong ties to CTV ads, its organic growth has consistently outpaced the industry’s digital ad growth rate.
Best of all, PubMatic’s operating margin has the ability to outpace its peers. Since it chose to design and build out its cloud-based infrastructure, it won’t have to share revenue with a third-party provider as it scales. Couple this with a cash-rich, debt-free balance sheet, and you have one amazing bargain in the adtech space.
The third phenomenal growth stock you’ll regret not adding with the Nasdaq falling into a bear market is edge cloud platform Fastly (FSLY 2.91%). Although wider-than-expected losses and a premium valuation sacked Fastly in 2022, the new year is looking far more favorable.
Fastly is best known for its content delivery network, which is tasked with getting content from the edge of the cloud to end users as quickly and securely as possible. The broad-based investment thesis with a company like Fastly is that we’ll see increased data consumption as coverage for 5G wireless download speeds expands and the metaverse evolves.
Despite its unsightly losses in 2022, many of Fastly’s key performance indicators are headed in the right direction. Since the end of 2020, it’s added just shy of 600 new customers, effectively doubled its global network capacity, added nine new countries, and sustained a dollar-based net expansion rate (DBNER) of around 120%. DBNER shows that existing customers are spending, on average, 20% more year over year.
Fastly also hired Todd Nightingale as its new CEO. Nightingale came over from Cisco Systems, where he was leading the company’s networking and cloud segment. Nightingale’s experience in leading a major organizational shift at Cisco should come in handy for Fastly and calm investors’ nerves.
Innovative Industrial Properties
The fourth awe-inspiring growth stock you’ll wish you bought during the Nasdaq bear market dip is marijuana-focused real estate investment trust (REIT) Innovative Industrial Properties (IIPR 3.88%). Even though federal cannabis reform efforts have fallen flat in Washington, D.C., IIP, as Innovative Industrial Properties is more commonly known, finds itself in great shape.
When the curtain closed on the third quarter, IIP owned 111 medical marijuana cultivation and/or processing facilities covering 8.7 million square feet of rentable space in 19 legalized states. It had collected 97% of its rents on time through the first nine months of 2022 and, most importantly, had a weighted-average lease length on these properties of 15.5 years. In short, IIP generates highly predictable cash flow every year.
One of the core reasons IIP continues to deliver is that the entirety of its portfolio is triple-net leased. A triple-net lease requires the tenant to cover all costs associated with a property, such as utilities, maintenance, property taxes, and insurance premiums. Pushing these costs to tenants helps ensure that IIP faces no cash-flow surprises.
Furthermore, the lack of cannabis reform on Capitol Hill has spurred Innovative Industrial Properties’ sale-leaseback operations. This program involves IIP buying facilities with cash and immediately leasing them back to the seller. Sale-leaseback agreements allow cannabis operators to receive much-needed cash while netting IIP long-term tenants.
The fifth and final phenomenal growth stock you’ll regret not buying on the Nasdaq bear market dip is data-mining company Palantir Technologies (PLTR 1.27%). While its premium valuation has been a crutch since 2021, shares are sufficiently de-risked following an 86% pullback from its all-time high.
As I’ve stated in the past, Palantir’s competitive advantage is that it’s seemingly irreplaceable based on what it can offer federal governments and businesses. Its artificial intelligence (AI)-driven platforms, Gotham and Foundry, can deliver sustained annual revenue growth of 20%, if not much higher.
For years, Gotham has been Palantir’s top growth and sales driver. This is the segment that works with federal agencies to gather data and plan missions. Gotham tends to land contracts that last four or five years, thereby creating a steady backlog. But it’s important to recognize that Gotham’s long-run ceiling is limited by the fact that not every global government can use its technology (e.g., Palantir won’t allow its solutions to be used by China or North Korea).
Palantir’s juiciest growth opportunity should come from Foundry, which works with businesses to turn mountains of data into usable information that helps streamline their operations. Palantir’s U.S. commercial customer count more than doubled in the September-ended quarter to 132 from 59 in the prior-year period. In other words, Foundry is just getting off the ground, yet it is exhibiting plenty of momentum despite a challenging economic environment. Look for Foundry to provide a boost to the company’s adjusted bottom line in 2023.