While I hate to be the bearer of bad news, stock market corrections are a perfectly normal part of the investment cycle. Since the beginning of 1950, the benchmark has S&P 500 has undergone 39 separate double-digit percentage corrections, according to data from sell-side consulting firm Yardeni Research. In other words, the violent Wall Street in 2022 is on par with the rate when investing in the long term.
When the major indices crossed the finish line last year, it was growth-focused Nasdaq Composite (^IXIC -1.76%) who were hit the hardest. The Nasdaq, which led the broader market to new highs in 2021, lost 33% of its value in 2022 and continues to languish in a bear market.
Image source: Getty Images.
But there is a silver lining to this bad news. While we will never be able to predict exactly when a bear market will occur or how steep the decline will be, we do know that all previous bear markets in the major US stock indexes (including the Nasdaq) were eventually swept away by a bull market . This actually means that every bear market is the ideal time to put your money to work.
This is a particularly lucrative time to shop for growth stocks. The following are five great growth stocks you’ll regret not buying in the Nasdaq bear market.
Nine
The first phenomenal growth stock just begging to be bought during the bear market decline is the China-based electric vehicle (EV) maker. Nine (NINE -3.19%). Although supply chain issues continue to weigh on Nio’s efforts to expand production, a number of headwinds have been safely put on the back burner.
In the past few years, Chinese stocks have had extra investment risk due to the country’s zero-COVID strategy, as well as the possible delisting of Chinese stocks by US regulators. However, China has abandoned its zero-COVID strategy and reopened its economy. What’s more, regulators got hold of three years of financial audits for Chinese firms, allaying fears of a delisting. In short, Nio is significantly de-risked from where things stood four months ago.
But what has really been impressive about this company is its various forms of innovation. Nio has introduced at least one new electric car every year and has seen sales of its ET7 and ET5 sedans take off since they hit showrooms last year. With the exception of January, when production was limited by factory shutdowns due to the Chinese New Year, Nio has delivered more than 10,000 electric cars every month since June 2022, with its sedans regularly accounting for more than half of those deliveries.
Nio’s out-of-the-box innovation is also on display. In August 2020, the company announced the rollout of its battery-as-a-service (BaaS) subscription. BaaS allows its electric car buyers to charge, exchange and upgrade batteries at more than 1,300 power exchange stations and more than 1,200 power charging stations. In exchange for a reduced purchase price for electric cars, Nio obtains high-margin, recurring subscription revenue from buyers via BaaS and keeps buyers loyal to the brand.
Exelixis
The other great growth stock you’ll kick yourself for not buying during the Nasdaq bear market decline is biotech stocks Exelixis (EXEL 0.06%). Despite occasional failures in clinical trials, cancer drug developer Exelixis is well positioned for double-digit growth.
Just over a week ago, Exelixis announced that a late-stage study involving its blockbuster drug Cabometyx in combination with Roche‘s Tecentriq failed to meet its primary endpoint of a statistically significant improvement in progression-free survival in a trial of patients with previously treated advanced kidney cancer. But failures happen. It’s part of being a drug developer.
What is far more important is that Exelixis has about six dozen clinical trials underway involving Cabometyx as monotherapy or combination therapy for a variety of cancer types. It only takes a handful of success stories to significantly expand Cabometyx’s sales and pricing power. We have already seen one of these studies that found the brand, which led to Exelixis and Bristol Myers Squibb obtains first-line approval for their combination treatment of renal cell carcinoma.
Furthermore, Exelixis has cash to fund ongoing internal development, collaborations and possibly even acquisitions. The company closed 2022 with approximately $1.31 billion in cash, cash equivalents and short-term investments and had an additional $756.7 million in long-term investments.
Image source: Walt Disney.
Walt Disney
A third amazing growth stock you’ll regret not adding during the Nasdaq’s bear market decline is the popular “House of Mouse.” Walt Disney (HAZE -2.67%). Although Walt Disney is a mature company, it is expected to maintain double-digit earnings growth for the next half decade. That definitely makes it a growth stock.
The biggest competitive advantage that Disney offers is that its business cannot be duplicated. While there are other theme parks for consumers to visit and other movies on the big screen, Disney’s characters and stories, along with the emotions, engagement and imagination they evoke in consumers, cannot be replicated by any other company.
As I have previously suggested, the value of this irreplaceability can be seen in Walt Disney’s pricing power. Since Disneyland opened its doors in Southern California in 1955, admission prices have increased by 10,300%. By comparison, US inflation has risen just over 1,000% over the same period. Disney has also been able to raise the prices of its ad-free streaming service, Disney+, while losing only a small portion of its subscribers.
The next step in Walt Disney’s evolution is to turn its money-losing streaming segment into a profit machine. Newly appointed CEO Bob Iger increased monthly subscription prices and is targeting profitability for this segment toward the end of fiscal 2024. When streaming becomes cash-flow positive, I’d be surprised to see Disney stock anywhere near $100 per share.
Innovative industrial properties
The fourth great growth stock you’ll regret not scooping up during the Nasdaq’s bear market swoon is the marijuana-focused real estate investment trust (REIT) Innovative industrial properties (IIPR -3.69%). Despite the speed bump in rent collection in recent months, IIP, as Innovative Industrial Properties is known, can show patient investors the green light.
The prevailing concern with IIP is that its timely rental collection rate has fallen from 100% to 92% at the end of February 2023. But it is important to understand that all REITs eventually deal with arrears. It’s how companies deal with their delays that matters. IIP’s fourth quarter report and year-to-date update show that it is working through these lapses and should be able to maintain these revenue streams or outright sell these properties for cash.
Another important point about Innovative Industrial Properties is that 100% of its properties are triple-net leased (also known as “NNN leased”). NNN leased properties require the tenant to cover all expenses, including utilities, maintenance, and even property taxes and insurance. While NNN leases reduce the rental income IIP can expect to receive, it also removes any chance of surprise expenses or inflation hurting the business.
Finally, Innovative Industrial Properties may be one of the few pot stocks to benefit from weed remaining illegal at the federal level. Since most cannabis businesses have limited access to basic financial services, IIP has been able to craft sale-leaseback agreements that benefit both parties. Growers and processors get much-needed cash from IIP, and IIP lands long-term tenants through this program.
Alphabet
A fifth amazing growth stock you’ll regret not buying during the Nasdaq bear market dive is Alphabet (GOOGL -1.83%) (GOOG -1.78%)the parent company of the internet search engine Google, the autonomous vehicle company Waymo and the streaming platform YouTube.
Currently, advertising weakness is Alphabet’s biggest headwind. As the likelihood of a recession increases, advertisers pull back their spending. But this is also a two-sided coin. Although recessions are inevitable, they are typically short-lived. Buying ad-driven stocks during these brief swoons often allows investors to take advantage of prolonged economic expansions.
Alphabet’s competitive advantage isn’t going away anytime soon, either. Since December 2018, data from GlobalStats shows that Google has accounted for around 91% to 93% of the global internet search share. Having a 90 percentage point lead over its next closest competitor allows Google to gain significant pricing power for ad placement.
Alphabet’s associated operating segments also hold plenty of promise. YouTube is the second most visited social platform in the world, with Shorts receiving more than 50 billion daily views. Meanwhile, Google Cloud has worked its way up to a 10% share of global spending on cloud infrastructure services.
Based on both forward-year earnings and future cash flows, Alphabet is cheaper now than at any time since it became a public company.