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4 Unsurpassed Growth Stocks You’ll Regret Not Buying in the Wake of the Nasdaq Bear Market Dip

4 Unsurpassed Growth Stocks You’ll Regret Not Buying in the Wake of the Nasdaq Bear Market Dip


The curtain has officially risen on what has been a banner year for Wall Street. Since I fell into a bear market in 2022, the emblematic Dow Jones Industrial Average reached new historic highs, while growth, fueled by Nasdaq Composite (NASDAQ INDEX: ^IXIC) has rebounded around 50% from its lows.

Interestingly, however, the index that did the most to lift the broader market to new highs in 2021 is still languishing below its all-time high. As of the December 27 close, the Nasdaq Composite remained 6% off its high point.

4 Unsurpassed Growth Stocks You’ll Regret Not Buying in the Wake of the Nasdaq Bear Market Dip

Image source: Getty Images.

While this decline may be disappointing for short-term traders, it is pleasing to the ears of long-term-minded investors. Indeed, notable declines in the Nasdaq Composite Index, in any form, have historically represented an opportunity to buy high-quality growth stocks at a discount.

What follows are four unmatched growth stocks you’ll regret not buying following the Nasdaq bear market decline.

Amazon

The first all-time growth stock you’ll be kicking yourself for not adding while the Nasdaq Composite is still recovering from the 2022 bear market is none other than the e-commerce leader. Amazon (NASDAQ:AMZN). Although some worry that Amazon could struggle if the U.S. economy weakens in 2024, the segments that matter most to the behemoth are still operating at full capacity.

Most consumers are familiar with Amazon because of its world-leading online marketplace. In 2022, Insider Intelligence (formerly eMarketer) estimated that Amazon accounted for nearly 40% of all online retail sales in the United States. However, online retail sales generate razor-thin margins. Although its online marketplace generates significant revenue, Amazon’s cash flow and operating income comes primarily from its ancillary segments.

None of these divisions are bigger than Amazon Web Services (AWS). According to estimates from technology analytics firm Canalys, AWS accounted for 31% of the global share of cloud infrastructure services in the quarter ended September. Enterprise spending on cloud infrastructure is still in its early stages, suggesting that sustained double-digit growth is likely throughout the decade (or beyond). AWS is consistently responsible for 50% to 100% of Amazon’s operating profit, although it only represents about a sixth of the company’s net sales.

Amazon’s subscription services and advertising services segments are also important cash flow drivers. Amazon has signed up more than 200 million people worldwide for a Prime membership. Additionally, its online marketplace attracts more than 2 billion people to its site every month. This is a recipe for strong advertising pricing power with merchants.

While Amazon isn’t cheap from a traditional price-to-earnings (P/E) ratio perspective, it is historically cheap relative to its future cash flows. Since the company reinvests most of its cash flow back into its business, this price-to-cash flow metric is much more indicative of how cheap Amazon stock is today.

Lovesac

A second unrivaled growth stock that you’ll regret not buying following the Nasdaq bear market decline is the small-cap furniture stock. Lovesac (NASDAQ: LOVE). While recession fears have the potential to weigh down the traditionally top-heavy furniture industry, Lovesac’s original innovations show it’s not like its brick-and-mortar peers.

The differentiation between Lovesac and all other furniture companies is clearly evident in its products. “Sactionals” – modular sofas that can be rearranged to fit most living spaces – account for just under 90% of Lovesac’s net sales. Sactionals offer over 200 different blanket choices, and the yarn used in their production comes entirely from recycled plastic water bottles. It’s worth noting that the Sactionals also have plenty of upgrade options, including built-in surround sound and wireless charging stations.

As you might have guessed, this differentiation makes fractional sofas more expensive than a traditional sofa or sectional sofa. But this price actually constitutes a competitive advantage for the company. It specifically targets middle- and high-income consumers, who are less likely to change their purchasing habits during economic downturns.

Lovesac’s omnichannel sales platform is another key to its success. During the COVID-19 pandemic, Lovesac was able to easily pivot its sales online. Although it has a physical presence in 40 US states, it covers its physical sales with pop-up showrooms, brand partnerships and direct-to-consumer sales. This strategy reduces its overheads and increases its operating margin.

Given its low double-digit annual sales growth, Lovesac looks like a bargain at 12 times next year’s earnings.

Mickey and Minnie Mouse welcome park guests to Disneyland, with Sleeping Beauty Castle in the background.Mickey and Minnie Mouse welcome park guests to Disneyland, with Sleeping Beauty Castle in the background.

Image source: Walt Disney.

Walt Disney

The third blue-chip growth stock you’ll regret not acquiring following the Nasdaq bear market crash is the media company. Walt Disney (NYSE:DIS). Although the COVID-19 pandemic has challenged multiple facets of Disney’s operations, such as its theme parks and movie division, many catalysts are now poised to act as tailwinds.

To build on the obvious, Walt Disney is expected to see a steady rebound in its movie entertainment division and theme park operations as life returns to normal and attendance picks up. These core segments, fueled by Disney’s exceptionally valuable brand and strong pricing power, can support double-digit profit growth over the next five years.

Most importantly, Walt Disney’s storytelling and commitment simply cannot be replicated by other companies. While there are other theme parks to attend and movies to watch, they don’t have the characters, story depth, or emotional attachment factor that Walt’s theme parks and movies have. Disney has been bringing this for decades. Consumers will happily pay extra for the Disney experience.

Another catalyst for Walt Disney is the expected improvement in the company’s streaming operations. Increasing monthly subscription prices across its various service tiers will generate additional revenue which, coupled with conscious cost reduction, is expected to move this segment towards profitability towards the end of FY2024.

A forward P/E ratio of 17 for an industry leader expected to generate 15.4% annualized earnings growth over the next five years is a bargain.

Starbucks

The fourth all-time growth stock you’ll regret not buying following the Nasdaq bear market decline is the ultra-popular coffee chain. Starbucks (NASDAQ:SBUX). Although inflation and COVID-19 have both been major foes for Starbucks in 2022, there is now a long list of catalysts acting as a tailwind.

Similar to Walt Disney, Starbucks is benefiting from favorable year-over-year operating performance comparisons as it moves past the worst of the pandemic. This is especially true in China, where Starbucks operates more than 6,800 stores as of October 1, 2023. China abandoned its strict “zero COVID” mitigation strategy in December 2022, meaning we are still seeing a healthy increase sales as life returns to normal.

Customer loyalty clearly works in Starbucks’ favor. Speaking as someone who has only missed their daily trip to Starbucks a few times over the past 30 years, the company’s customers tend to be willing to absorb price increases above the rate of ‘inflation. Starbucks closed fiscal 2023 (ending October 1) with 32.6 million active Rewards members. These Rewards members have larger ticket sizes on average than non-Rewards customers, and they are more likely to use mobile ordering, which speeds up service times.

Additionally, Starbucks made big changes to its drive-thru system during the pandemic, which are now paying off. The company added video to its order boards to personalize the drive-thru experience, and also focused on food and drink pairings to drive high-margin items and speed up the ordering process.

While Starbucks stock doesn’t look cheap at 20 times next year’s earnings, it certainly is once you factor in its phenomenal pricing power, loyal customer base and its expected annualized earnings growth of 15.5% over the next five years.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams has positions at Amazon and Lovesac. The Motley Fool holds positions and recommends Amazon, Starbucks and Walt Disney. The Motley Fool recommends Lovesac. The Motley Fool has a disclosure policy.

4 Unmatched Growth Stocks You’ll Regret Not Buying Following the Nasdaq Bear Market was originally published by The Motley Fool



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