Although it can be an unpleasant learning experience for new investors, Wall Street provided a reminder last year that stocks can, indeed, go down just as easily as they can rise. Although all three major U.S. stock indexes endured their worst year since 2008, it was the growth-focused Nasdaq Composite (NASDAQINDEX: ^IXIC) that was hit hardest — a 33% decline.
But here’s the interesting thing about bear market declines in the major stock indexes: They’re always a red-carpet opportunity for long-term investors. Despite the Nasdaq Composite undergoing numerous double-digit percentage corrections, a bull market has always, eventually, recouped its losses (and some).
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Since growth stocks took it on the chin over the past 15 months, they’re the most logical niche of stocks to bounce back when a new bull market takes shape. What follows are five astonishing growth stocks you’ll regret not buying on the Nasdaq bear market dip.
Vertex Pharmaceuticals
The first awe-inspiring growth stock that you’ll be kicking yourself for not buying during the Nasdaq bear market decline is biotech stock Vertex Pharmaceuticals (NASDAQ: VRTX). Despite its drug portfolio being concentrated in one area of focus, the company’s cash flow is well protected.
Vertex is best known for its role in helping improve the lives of patients with cystic fibrosis (CF), a genetic disease characterized by thick mucus production that can obstruct a person’s lungs and/or pancreas. Vertex has developed four generations of Food and Drug Administration-approved therapies aimed at improving lung function for patients with the most common CF mutation (F508del). The latest of these treatments, Trikafta, is bringing in more than $8 billion in annual run-rate sales.
No other drug developer is particularly close to disrupting Vertex in CF. To boot, the company has other areas of focus that may soon be generating recurring revenue. This includes exagamglogene autotemcel (exa-cel) for patients with severe sickle cell disease and transfusion-dependent beta thalassemia. With a rolling biologics license application for exa-cel in the U.S., Vertex and development partner CRISPR Therapeutics could soon have a new blockbuster on their hands.
And have I mentioned that Vertex is sitting on a hearty cash pile? Even after outlaying capital to acquire ViaCyte, Vertex’s cash, cash equivalents, and marketable securities grew by $3.3 billion in 2022 to $10.8 billion. This capital puts a healthy floor beneath Vertex’s stock and makes its forward-year price-to-earnings ratio of 20 appear all the cheaper.
PubMatic
A second stellar growth stock you’ll regret not scooping up on the Nasdaq bear market drop is adtech company PubMatic (NASDAQ: PUBM). Although it’s perfectly normal for ad spending to taper off when the prospects of a recession are climbing, PubMatic finds itself perfectly positioned to take advantage of the shift to digital advertising.
PubMatic is what’s known as a sell-side platform (SSP) in the programmatic ad space. In English, this just means it helps advertisers sell their digital display space using software on its cloud-based platform. One advantage of being an SSP is the amount of consolidation that’s occurred in recent years. With fewer competitors, PubMatic has been able to grow its share of the digital ad market.
Perhaps more importantly, PubMatic is focused on the fastest-growing aspects of the digital ad industry. Whereas the digital ad industry is forecast to grow by 14% on an annualized basis through 2025, PubMatic is generating more than a third of its revenue from omnichannel video programmatic ads, such as connected TV, which are growing at roughly twice the annualized rate as the industry forecast. In short, PubMatic’s organic growth rate should easily outpace its peers.
Another overlooked advantage to PubMatic’s operating model is its cloud-based infrastructure. The company chose to build out its own infrastructure rather than rely on a third-party provider. This should prove particularly beneficial to PubMatic’s operating margin as its revenue scales.
Image source: Getty Images.
Datadog
The third astonishing growth stock just begging to be bought with the Nasdaq mired in a bear market is infrastructure and application monitoring stock Datadog (NASDAQ: DDOG). While Datadog’s premium valuation is a potential headwind during a bear market and possible recession, the company’s competitive edge and phenomenal operating performance make it a lot cheaper than most investors realize.
On a macro basis, Datadog finds itself in the right place following the pandemic. Businesses are increasingly moving their presence online and their data into the cloud. That plays in perfectly with the company’s application-monitoring software and real-time unified data platform. According to a forecast from Gartner, the observability market alone is a $62 billion addressable opportunity by 2026.
But what really makes Datadog tick is its success in gaining big businesses as customers. Though it has an impressive 23,200 total customers, it’s the 47% year-over-year growth in the number of clients with $1 million (or more) in annual recurring revenue that’s really driving profits at Datadog. Between landing these big fish and seeing existing clients add onto their initial purchase, Datadog has had no trouble sustaining a 25%-plus annual growth rate.
If you need one more solid reason to pay the premium for Datadog, consider this: Enterprise cloud spending accounted for roughly 8% of global information technology spending in 2021. By 2026, it’s estimated to be closer to 20%. Datadog is built to help businesses with their cloud migration, so don’t expect its growth rate to slow anytime soon.
Cresco Labs
A fourth magnificent growth stock you’ll regret not adding on the Nasdaq bear market swoon is U.S. marijuana stock Cresco Labs (OTC: CRLBF). Even though cannabis reform legislation continues to stall in Congress, multi-state operators (MSOs) like Cresco have more than enough catalysts to push into the green.
As of March 8, 2023, Cresco Labs had 63 operating dispensaries in 10 states. Though 28 of these stores are located in medical marijuana-legal Florida, the company has been spending a lot of its effort pushing into limited-license markets, such as Illinois, Massachusetts, Ohio, and Pennsylvania. States where regulators limit retail license issuance offer a level playing ground for relatively smaller MSOs like Cresco Labs to build up their brands and grow their following.
Then again, Cresco Labs may not be “relatively small” for much longer. It’s currently in the process of acquiring MSO Columbia Care in an all-share deal. Inclusive of the one dozen facilities being divested to satisfy regulators, the combined company would entail more than 130 operating dispensaries spanning 18 legalized states. Cost synergies should allow this new Cresco to be even more efficient over time.
Yet the unsung hero of Cresco’s operations might be its wholesale segment. While wholesale cannabis margins notably trail retail cannabis, Cresco holds a key advantage when it comes to volume. Thanks to its acquisition of Origin House in January 2020, it holds one of only a few cannabis distribution licenses in California. This allows it to place its proprietary products into hundreds of dispensaries throughout the Golden State.
Okta
The fifth astonishing growth stock you’ll regret not buying on the Nasdaq bear market dip is cybersecurity company Okta (NASDAQ: OKTA). In spite of higher-than-expected integration costs following the acquisition of Auth0, Okta looks to be on the path to recurring profits and sustained double-digit sales growth.
Before getting into company specifics, it’s important to recognize that the cybersecurity industry has become something of a necessity service. As businesses move their data into the cloud and develop an online presence, they’re becoming evermore reliant on third-party security solutions. Since hackers don’t take a day off, neither does demand for cybersecurity solutions.
Okta specializes in identity verification solutions. The company’s platform is cloud-based and relies on artificial intelligence and machine learning to grow more effective over time. Whereas on-premises security solutions have their limitations, Okta can effectively be layered for ongoing monitoring and authorization of users.
The biggest catalyst moving forward is simply Okta putting its one-time integration costs from buying Auth0 in the rearview mirror. A cleaner income statement in the current fiscal year, coupled with Auth0 breaking down borders and giving Okta an opportunity to expand its revenue channels into Europe, should be a positive for existing shareholders.
With Okta generating record operating cash flow of $76 million during the fourth quarter and ending the fiscal year (Jan. 31, 2023) with just over $3 billion in subscription backlog, the arrow appears to be pointing higher for long-term investors.
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Sean Williams has positions in Columbia Care, PubMatic, and Vertex Pharmaceuticals. The Motley Fool has positions in and recommends CRISPR Therapeutics, Cresco Labs, Datadog, Okta, PubMatic, and Vertex Pharmaceuticals. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
