In 2023, Wall Street enjoyed a truly stellar year. Although the ageless Dow Jones Industrial Average climbed to a record high, it was the 43% gain by the growth-stock-driven Nasdaq Composite(NASDAQINDEX: ^IXIC) that stole the spotlight.
Yet in spite of this sizable bounce from the 2022 bear market lows, the high-flying Nasdaq Composite remains more than 7% below its all-time high, which was set in November 2021.
Image source: Getty Images.
While a decline in the growth-stock-fueled Nasdaq Composite over the past 26 months may not be what short-term traders expected, it's music to the ears of long-term-minded investors. Even though we can't pinpoint ahead of time when stock market corrections will begin, history has shown that every downturn in the major indexes (including the Nasdaq) will be eventually (key word!) wiped away by a bull market rally.
What follows are four marvelous growth stocks you'll regret not buying in the wake of the Nasdaq bear market dip.
Mastercard
The first exceptional growth stock that's begging to be bought with the Nasdaq Composite still notably below its record high is payment facilitator Mastercard(NYSE: MA).
The top concern for financial stocks like Mastercard is that they're cyclical. In other words, they ebb and flow with the health of the U.S. economy.
With a couple of money-focused metrics and predictive tools forecasting a U.S. recession in 2024, there's the genuine possibility that consumer and enterprise spending could taper as the year wears on. As a predominantly fee-based business, Mastercard would struggle during a recession.
On the other hand, recessions don't last very long. Only three of the one dozen recessions since 1945 have lasted at least a year, with none surpassing 18 months. Since expansions typically last multiple years, companies like Mastercard are often thriving.
To add to the above, Mastercard's management team has made the wise decision to steer clear of the lending space. Though the company would probably excel as a lender, economic downturns would expose it to loan losses that require capital to be set aside. Not having to set aside capital is a competitive advantage that supports the company's 40%-plus profit margin and allows it to bounce back from recessions faster than most lending institutions.
Mastercard's opportunity in largely underbanked emerging markets, coupled with its established position in developed markets, should double its earnings per share over a five-year stretch (2022-2027). With an annualized estimated earnings growth rate of nearly 21% over the coming five years, Mastercard stock remains cheap.
BioMarin Pharmaceutical
A second marvelous growth stock you'll regret not adding to your portfolio in the wake of the Nasdaq bear market decline is biotech stockBioMarin Pharmaceutical(NASDAQ: BMRN).
The biggest argument skeptics can bring to the table for BioMarin is that shares are currently pricey. On a trailing-12-month (TTM) basis, investors are paying north of 120 times earnings. While this does represent quite the premium to the broader market, a projected 43% annualized earnings growth rate over the next five years should more than make up for these concerns.
BioMarin's competitive edge is that it focuses on developing therapies for patients with ultrarare diseases. Though there are monetary risks involved with developing drugs targeting a small pool of patients, there are also ample rewards for approved therapies. Health insurers rarely push back on high list prices for rare-disease drugs, and there's usually little competition.
Though BioMarin has more than a half-dozen approved therapies, its dwarfism drug Voxzogo is making the biggest impact. Voxzogo sales more than tripled through the first nine months of 2023, when compared to the prior-year period, and have the potential to eventually top $1 billion in peak annual sales. New drug launches, coupled with organic growth from existing therapies, have put BioMarin on a path to double its full-year sales to north of $4 billion by 2027.
Lastly, don't forget that healthcare stocks are incredibly defensive. No matter what the U.S. economy throws consumers' way, patients will still need prescription medicine. This suggests that BioMarin Pharmaceutical's operating cash flow can remain strong and predictable in any economic climate.
Image source: Getty Images.
Etsy
The third amazing growth stock you'll be kicking yourself for not purchasing in the wake of the Nasdaq bear market swoon is burgeoning e-commerce companyEtsy(NASDAQ: ETSY).
Similar to Mastercard, the prevailing headwind for Etsy would be a recession taking shape in 2024. Etsy's platform is driven by consumer purchases, and it's no secret that consumers spend less when economic growth weakens. But as I pointed out with Mastercard, periods of economic expansion handily outlast recessions. For long-term investors, this is a numbers game that's very much in their favor.
What makes Etsy's operating model "tick" is the company's merchant base. Whereas e-commerce giants like Amazon dominate from a volume perspective, there's not a big attempt to personalize the buying process. Etsy's entire merchant base is comprised of sole proprietors and small businesses that'll customize orders. No e-commerce platform can, at scale, match the personalization that Etsy's merchant base brings to the table.
At the same time, Etsy has done a phenomenal job of capitalizing on habitual buyers. A "habitual buyer" is someone who makes six or more purchases over the TTM period, with the aggregate of these purchases totaling at least $200. Over the four-year period between Sept. 30, 2019 and Sept. 30, 2023 (i.e., beginning prior to the start of the COVID-19 pandemic), the number of habitual buyers tripled to 7.1 million. Habitual-buyer growth is what gives Etsy phenomenal fee-pricing power with merchants and has helped fuel a modest increase in its take rate.
Although Etsy's forward price-to-earnings (P/E) ratio of 26 might seem a bit lofty, considering the uncertain outlook for the U.S. economy, its consensus annualized earnings growth rate of 16% over the next five years implies it's still inexpensive.
Meta Platforms
A fourth marvelous growth stock you'll regret not buying in the wake of the Nasdaq bear market dip is social media giantMeta Platforms(NASDAQ: META).
Not to sound like a broken record, but the fear of a recession could be the biggest monkey on Meta's proverbial back in the new year. Meta generates in excess of 98% of its revenue from advertising, and advertisers are known to pare back their spending at the first signs of trouble. It's one of the reasons why Meta struggled mightily in 2022.
Thankfully, Meta Platforms has easily identifiable catalysts and moats working in its favor. For example, Facebook, Instagram, WhatsApp, and Facebook Messenger collectively helped the company attract close to 4 billion monthly active users during the September-ended quarter. Businesses are keenly aware that no social media platform offers them access to more eyeballs than Meta's top-tier social media real estate. As a result, the company typically enjoys exceptional ad-pricing power.
Meta's operating cash flow and balance sheet are additional reasons this stock is a surefire buy. Despite widening losses from virtual and augmented reality segment Reality Labs, Meta still generated $51.7 billion in net cash from its operations through the first nine months of 2023. When coupled with its greater-than $61 billion in cash, cash equivalents, and marketable securities, it's clear the company has the luxury of taking risks on next-big-thing investment trends.
The final reason to confidently buy Meta Platforms is its valuation. Even after quadrupling from its bear market lows in 2022, Meta stock remains historically cheap. Shares can currently be purchased for about 12X forward-year cash flow, which represents a 22% discount to the average cash flow multiple Meta has traded at over the previous five years.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. 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 in Amazon, Mastercard, and Meta Platforms. The Motley Fool has positions in and recommends Amazon, Etsy, Mastercard, and Meta Platforms. The Motley Fool recommends BioMarin Pharmaceutical and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
