For the lion's share of this decade, volatility has ruled the roost on Wall Street. Beginning in 2020, all three major stock indexes began vacillating between bear and bull markets in successive years (not including 2024), with the growth stock-focused Nasdaq Composite(NASDAQINDEX: ^IXIC) seeing the largest percentage swings.
After losing a third of its value during the 2022 bear market, the Nasdaq Composite has catapulted higher by 57% since the beginning of 2023 and taken out its previous high. There's no question that the innovation-fueled index is in the early stages of a bull market.
Image source: Getty Images.
But here's the thing about Wall Street's major indexes: Value can always be uncovered, no matter how pricey stocks may seem as a whole. Even with the Nasdaq rocketing to fresh highs, patient investors can still find growth stocks trading at a discount.
What follows are four spectacular growth stocks you'll regret not buying in the new Nasdaq bull market.
Alphabet
The first awe-inspiring growth stock you'll be kicking yourself for not grabbing with the Nasdaq Composite in a fresh bull market is "Magnificent Seven" member Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG). Alphabet is the parent of internet search engine Google and streaming platform YouTube, among its many ventures.
The only reason Alphabet hasn't completely blown the roof off of its previous high set in 2021 has to do with uncertainties tied to the advertising industry. In 2023, approximately 76% of Alphabet's $86.3 billion in net sales traced back to its vast advertising platforms. With a couple of money-based metrics (e.g., M2 money supply) and recession-predicting tools pointing to a potential downturn in the U.S. economy, ad-driven companies like Alphabet are at risk for near-term weakness.
But even though recessions are a normal part of the economic cycle, they're over relatively quick. Only three recessions since the end of World War II have reached the one-year mark, with none surpassing 18 months. Comparatively, most periods of growth endure for multiple years, which is fantastic news for ad-driven businesses.
Alphabet's operating "heart and soul" continues to be its internet search engine. In February, Google accounted for a 92% share of worldwide internet search, which is a practical monopoly. Being the undisputed leader means businesses are willing to pay Google a premium to get their message(s) in front of users.
But the latter half of the decade should see Google Cloud play a larger role in Alphabet's cash flow generation. Google Cloud is the world's No. 3 cloud infrastructure service platform by spend (as of September, per Canalys), and it just closed out its first year of profitability. Cloud-service margins are more robust than advertising margins, which should lead to a sizable boost to Alphabet's operating cash flow in the years to come.
The icing on the cake is that Alphabet is valued at 13.5 times forward-year cash flow estimates, which represents a 24% discount to its five-year average multiple to cash flow.
Lovesac
Amazing deals can be found in under-the-radar companies as well. The second spectacular growth stock you'll regret not adding to your portfolio with the Nasdaq Composite finding its stride is furniture stock Lovesac(NASDAQ: LOVE). Yes, I said "furniture stock" and "growth stock" in the same sentence.
Typically, furniture companies are slow-growing, heavily reliant on brick-and-mortar stores, and they purchase their goods from the same small group of wholesalers. Lovesac is completely altering this perception with its furniture and sales approach.
The obvious differentiator for Lovesac is the company's products. Specifically, about 90% of its revenue comes from selling "sactionals" -- modular couches that buyers can rearrange dozens of ways to fit most living spaces. The yarn used in sactional covers is made entirely from recycled plastic water bottles, and buyers have more than 200 different covers to choose from. No other product offers this combination of functionality, optionality, and eco-friendliness in the furniture space.
Something else key to Lovesac's ongoing success is its targeting of well-to-do consumers. Lovesac's unique products come with an assortment of upgrade options, including built-in surround sound and wireless charging, which can lift the price of sactionals well above a traditional sectional couch. Thankfully, this isn't an issue, since its core, higher-earning customer is rarely fazed by minor economic disruptions.
What ties everything together for Lovesac is its omnichannel sales platform. While it does have a traditional brick-and-mortar presence in 40 states, it's notably leaned on pop-up showrooms, brand-name partnerships (e.g., Costco Wholesale and Best Buy), and digital sales, as a means to reduce its overhead expenses and boost margins.
Despite low double-digit sales growth, Lovesac's stock is valued at just 10 times forward-year earnings.
Image source: Getty Images.
Western Digital
The third eye-catching growth stock you'll regret not buying with the Nasdaq bull market finding its footing is storage solutions specialist Western Digital(NASDAQ: WDC).
There are often two prevailing headwinds for data storage companies. The first (as would be expected) is the health of the U.S. economy. Tech stocks are usually cyclical, so any potential for a downturn in the economy is likely to weigh on the storage industry.
The other is the overzealousness of storage companies. When pricing improves, they have a tendency to flood the market with supply and hurt their own margins.
The good news for Western Digital is that it should enjoy exceptional demand throughout the remainder of the decade on two fronts. First, enterprise cloud spending is still arguably early in its ramp-up. Researchers at Fortune Business Insights expect the global cloud computing market to grow by an annualized rate of 20% through 2030, ultimately reaching $2.43 trillion. As enterprise cloud expands, so does the need for storage solutions.
To add to this, Western Digital's NAND flash-memory solutions are ideally positioned to benefit from growing enterprise cloud needs. The higher transfer rates associated with NAND flash memory may make it an enterprise data-center staple by the turn of the decade.
Western Digital can also benefit from the rise of artificial intelligence (AI). Analysts at PwC believe AI can add over $15 trillion to global gross domestic product by 2030. As the computational needs of AI-accelerated data centers grows, Western Digital's storage solutions will be in higher demand.
The valuation makes sense, too. With the sales forecast to grow by nearly 50% over the next four years, Western Digital's forward-year price-to-earnings ratio of 11 is a bargain.
Fastly
A fourth spectacular growth stock you'll regret not buying in the new Nasdaq bull market is edge computing companyFastly(NYSE: FSLY). The company is best known for its content delivery network (CDN), which moves data from the edge of the cloud to end users as quickly and securely as possible.
The reason Fastly has underperformed over the past three years is its bottom line. Wider-than-expected losses and sizable share-based compensation under the company's previous CEO, Joshua Bixby, turned investors off to this growth story. However, the arrival of Todd Nightingale as the company's new CEO can change everything.
Nightingale officially took over in September 2022 and filled in key pieces of the puzzle that were missing. He previously worked as the lead for Cisco Systems' Enterprise Networking and Cloud segment. Not only does he have a keen understanding of what initiatives Fastly should tackle to grow its enterprise customer base, but he knows where costs can be reduced to move Fastly toward recurring profitability. Consensus estimates call for Fastly to reach recurring profits in 2025.
Similarly to Western Digital, Fastly is set to benefit from the steady shift of enterprise data online and into the cloud. As everything becomes more digital, end user demand for content grows. Since Fastly is a usage-driven platform, this is a recipe for higher gross profit.
Another reason long-term-minded investors can be excited about Fastly's prospects is that many of its key performance indicators are pointing higher. Average enterprise customer spend has increased 16% to $880,000 since March 31, 2022, while its dollar-based net expansion rate (DBNER) has stuck like molasses to the 118% to 123% range over the last eight quarters. What DBNER shows is that existing customers are spending between 18% and 23% more on a year-over-year basis.
Fastly's expected annualized earnings growth rate of 30% over the next five years makes it a premier growth stock to own.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Sean Williams has positions in Alphabet, Fastly, Lovesac, and Western Digital. The Motley Fool has positions in and recommends Alphabet, Best Buy, Cisco Systems, Costco Wholesale, and Fastly. The Motley Fool recommends Lovesac. The Motley Fool has a disclosure policy.
