The previous four years have served as a reminder that Wall Street is highly unpredictable over short timelines. Since this decade kicked off, all three major stock indexes have traded off bear and bull markets on a couple of occasions.
This volatility has been especially pronounced in the Nasdaq Composite(NASDAQINDEX: ^IXIC). After shedding a third of its value during the 2022 bear market, the Nasdaq Composite has skyrocketed 56% since the start of 2023. It also hit a fresh all-time high in April, which confirms that we're in a relatively new bull market.
Image source: Getty Images.
The interesting thing about bull markets is that phenomenal deals can always be found -- you just have to be willing to look for them. With artificial intelligence (AI) stocks responsible for a sizable portion of the Nasdaq's gains, it means growth stock bargains elsewhere are still flying under the radar.
What follows are four preeminent growth stocks you'll regret not buying in the new Nasdaq bull market.
Alphabet
The first prominent growth stock you'll be upset with yourself for not adding to your portfolio with the Nasdaq marching to new highs is the "Magnificent Seven" component Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG). Alphabet is the parent of internet search engine Google, streaming site YouTube, and cloud infrastructure service platform Google Cloud, among other ventures.
The only true weakness Alphabet has shown is that it's cyclical. Nearly 77% of the $80.5 billion in sales the company generated in the quarter ended in March came from advertising. During recessions, it's pretty common for businesses to quickly pare back their advertising budgets, which would leave Alphabet temporarily vulnerable to downside.
However, this "crutch" is also one of Alphabet's top catalysts. You see, even though recessions are a perfectly normal and unavoidable part of the economic cycle, they've historically resolved rather quickly. This means Alphabet's ad-centric operating segments -- including Google, which accounted for a roughly 91% share of global internet search share in April -- get to enjoy lengthy periods of economic expansion.
Perhaps the bigger story has been the ascension of Google Cloud, which has become the world's No. 3 cloud infrastructure service platform by spend as of September 2023. Google Cloud is pacing more than $38 billion in annual run-rate sales and has delivered five consecutive quarters of operating income after years of losses. It's quickly becoming the cash cow investors have long dreamed it would be.
The steady long-term expansion of Alphabet's ad segments, coupled with the rapid growth of Google Cloud, should allow Alphabet's cash flow per share to expand by more than 50% between 2023 and 2026. Relative to its future cash flow, Alphabet remains historically cheap.
PubMatic
A second preeminent growth stock you'll regret not scooping up with the Nasdaq entering a fresh bull market is cloud-based programmatic adtech companyPubMatic(NASDAQ: PUBM).
Similar to Alphabet, the prevailing concern for PubMatic is the health of the U.S. and global economies. Thankfully, no recession since the end of World War II has surpassed 18 months in duration. Comparatively, two periods of expansion endured longer than 10 years. This disparity in economic growth is what allows advertising-based businesses like PubMatic to thrive.
However, the real "secret" to PubMatic's success is its focus on digital advertising. Businesses are undeniably shifting their advertising dollars away from traditional print and billboards and toward video, mobile, and connected TV (CTV). The latter has been a particularly fast-growing channel for PubMatic, positioning the company for sustained double-digit sales and profit growth. During the quarter that ended in March, omnichannel video sales, which includes CTV, jumped by 33% from the prior year.
Aside from being at the center of the fastest-growing trend within advertising, management also deserves kudos for avoiding the easy solution and choosing to build out its cloud-based infrastructure. While it would have been quick to simply lean on an existing third-party platform, developing its own cloud-based programmatic ad platform is now allowing the company to hang on to more of its revenue as it scales. This is a recipe for a sustainably higher operating margin over time.
The final selling point with PubMatic is its balance sheet. It closed out the quarter ending in March with $174.1 million in cash, cash equivalents, marketable securities, and no debt. It's been using this cash to buy back its own stock, which should provide a modest lift to earnings per share (EPS).
Image source: Getty Images.
NOV
The third incredible growth stock you'll wish you added to your portfolio with the Nasdaq in the early stages of a bull market is oil and gas equipment services company NOV(NYSE: NOV).
Admittedly, some investors are going to be turned off by the idea of putting their money to work in the oil and gas industry. Aside from being considered a "sin" industry, the oil and gas industry was walloped by a historic demand drop-off for energy commodities during the initial stages of COVID-19 lockdowns four years ago. That still-fresh memory has kept select investors on the sidelines.
But what's interesting for NOV is that this uncertainty has created an almost ideal growth scenario for the company. Approximately three years of reduced capital spending by global energy majors, coupled with Russia's invasion of Ukraine, has constrained the global supply of oil -- and there's no quick fix. With the spot price of crude oil elevated and expected to remain above its historic average for the foreseeable future, NOV should benefit from increased drilling demand.
I'll also add that NOV has the ability to thrive in virtually any economic climate. There aren't too many alternatives to the services NOV provides to onshore/offshore drillers and fracking companies. Further, it's able to benefit from onshore/offshore wind turbine installation. NOV closed out the first quarter with nearly $4 billion in backlogged equipment orders.
Lastly, the valuation is hard to ignore. Despite the challenges the oil industry has contended with since this decade began, NOV's EPS is expected to increase 69% to $2.16 between 2023 and 2026. With its shares trading near $19, you can get a true feel for how much of a deal investors are getting right now with this oilfield equipment services provider.
Block
A fourth preeminent growth stock you'll regret not buying in the new Nasdaq bull market is none other than financial technology (fintech) leaderBlock(NYSE: SQ). While there's been some concern about increased competition in the digital payment arena, Block's key performance indicators have had no trouble putting skeptics in their place.
For over a decade, Block's foundation has been its Square ecosystem (it was originally known as "Square" before changing its name). This is the segment that provides point-of-sale solutions, data analytics, and loans to merchants. The quarter ended in March saw the Square ecosystem handle $50.5 billion in gross payment volume (GPV), or $202 billion on an annualized run-rate basis. For some context, the entire platform handled less than $7 billion GPV in 2012.
But what really hits home about the Square ecosystem is that its point-of-sale solutions are reaching larger businesses. Approximately 39% of the $50.5 billion in GPV in the first quarter can be traced back to businesses with at least $500,000 in annualized GPV. That's up four percentage points from the comparable period in 2022. Since this is predominantly a fee-driven platform, bigger businesses should have a more meaningful and positive impact on this segment's gross profit.
Looking to the horizon, digital payments platform Cash App may be an even more prolific cash-flow generator for Block. The company notes that it had 57 million monthly transacting active customers in the quarter that ended in March, as well as 24 million Cash App active cardholders -- the Cash App card links directly to a user's Cash App balance. The gross profit Block is generating from each Cash App active user is significantly higher than the cost to acquire these users.
Consensus estimates call for Block to more than triple its EPS over the next three years. With a sustained double-digit growth rate, this makes Block one heck of a bargain among growth stocks.
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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, Block, and PubMatic. The Motley Fool has positions in and recommends Alphabet, Block, and PubMatic. The Motley Fool has a disclosure policy.
