For the better part of the past four years, Wall Street has resembled a roller-coaster ride. Beginning in 2020, the major stock indexes have bounced back and forth between bull and bear markets, with the growth-driven Nasdaq Composite (^IXIC) experiencing the wildest swings of all.
During the 2022 bear market, the Nasdaq Composite shed 33% of its value. Through nearly 11 months of 2023, it’s risen by 36%. But in spite of this big-time rally, the index most responsible for lifting Wall Street to new heights in 2021 remains 11% below its record-closing high.
For some investors, an 11% decline may seem like a lost two-year period for growth stocks. But for long-term investors with cash at the ready, an 11% dip in the Nasdaq Composite is the ideal opportunity to nab high-quality growth stocks at a discount.
What follows are four first-class growth stocks you’ll regret not buying in the wake of the Nasdaq bear market dip.
Visa
The first top-notch growth stock you’ll be kicking yourself for not buying with the Nasdaq Composite still well below its all-time high is payment processor Visa (V), whose long-term catalysts have shown no signs of slowing.
The top concern for Visa shareholders would be a U.S. or global recession. Most financial stocks, including Visa, are cyclical, and would therefore see their sales and profits decline during periods of economic contraction. The thing is, the U.S. economy spends a considerably longer amount of time expanding than contracting. Even though downturns are inevitable, Visa enjoys the luxury of growing in lockstep with the U.S. and global economy.
Furthermore, Visa is in the driver’s seat in the largest market for consumption on the planet, the United States. Based on filings with the Securities and Exchange Commission in 2021 from the four major payment processors, Visa held a 52.6% share of credit card network purchase volume. It was the only major processor to gain meaningful share following the Great Recession, which makes it the logical go-to for merchants.
Visa also wins with its relatively conservative operating approach. Despite some of its competitors also acting as lenders, Visa has chosen to strictly focus on facilitating payments for merchants. While it might seem like Visa is giving up a sizable opportunity, this decision ensures that the company has no direct liability when credit delinquencies and loan losses rise during periods of economic weakness. The key point being that Visa has no need to set aside capital to cover credit/loan losses during downturns, which is why it’s able to bounce back so quickly from recessions.
The topper is that Visa is historically cheap. Over the previous five years, Visa averaged a forward price-to-earnings (P/E) ratio of 30. Its shares can be purchased right now for less than 23 times forward-year earnings, which is a decade low.
Fiverr International
Another first-class growth stock you’ll regret not scooping up in the wake of the Nasdaq bear market swoon is online-services marketplace Fiverr International (FVRR). In spite of growing recessionary fears, Fiverr appears to be perfectly positioned to sustain a double-digit growth rate over the long run.
To begin with, macro shifts in the labor market are working in the company’s favor. While some workers have returned to the office, far more have chosen to remain remote following the worst of the COVID-19 pandemic. A mobile labor force plays right into the gig economy-driven marketplace offered by Fiverr.
Fiverr’s online-services marketplace is also helping it stand out from its competition. Most of its peers allow freelancers to price their tasks at an hourly rate, which can make it difficult for buyers to gauge what their final expense will be. With Fiverr, freelancers are pricing their jobs at an all-inclusive cost, which creates unparalleled price transparency. This cost transparency is clearly hitting home with buyers given that spend per buyer continues to climb, even amid an uncertain economic outlook.
But the best thing about Fiverr International is its industry-leading take rate — i.e., the percentage of each deal, including fees, that Fiverr gets to keep. Ideally, online-service marketplaces are keeping an ever-growing percentage of deals without losing freelancers or buyers. This is precisely what we’ve seen from Fiverr, whose take rate expanded to 31.3% in the September-ended quarter. This rate is nearly double that of the company’s top competitors.
The valuation is shareholder-friendly as well. Shares of Fiverr can be purchased for a little over 10 times forward-year adjusted earnings, which looks like a phenomenal deal for a company that shouldn’t have any trouble maintaining a long-term double-digit growth rate.
Green Thumb Industries
The third unequaled growth stock you’ll regret not adding to your portfolio in the wake of the Nasdaq bear market decline is cannabis multi-state operator (MSO) Green Thumb Industries (GTBIF). Although federal marijuana reform has left a lot to be desired on Capitol Hill, the future looks quite green for this premier pot stock.
The first catalyst for Green Thumb is that state-level momentum has really picked up. On Election Day, Ohio became the 24th state to green-light recreational cannabis. In 2024, New Hampshire and Florida will both have a good shot to tip the scales toward adult-use legalization. Though federal reform may not occur until after the 2024 election, having more than half the states legalize recreational cannabis is bound to get Capitol Hill’s attention.
Green Thumb currently has 87 operating dispensaries and a presence in 15 states, many of which are top-dollar cannabis markets, such as California, Colorado, and Florida. More importantly, it has a lot retail licenses in its back pocket that it can use to meaningfully grow its retail presence as new states legalize recreational weed and/or the federal government changes its tune on pot.
The true differentiator for Green Thumb, when placed side-by-side with other MSOs, is the company’s revenue mix. During the September-ended quarter, only 44% of its sales came from traditional cannabis flower, which is a generally low-margin category. The remaining 56% can be traced to an assortment of derivatives, such as vapes, edibles, pre-rolls, and concentrates. These are higher price-point products with juicier margins that have lifted Green Thumb to recurring profits. Most MSOs aren’t yet profitable on a recurring basis.
To keep with theme, Green Thumb Industries is reasonably inexpensive. While its forward P/E ratio of 43 might sound pricey on the surface, the company’s annual earnings per share (EPS) is slated to grow by a factor of 10 between 2022 and 2026.
Vertex Pharmaceuticals
The final first-class growth stock you’ll regret not buying in the wake of the Nasdaq bear market dip is specialty biotech company Vertex Pharmaceuticals (VRTX). Even though Vertex has a highly concentrated drug portfolio at the moment, the future looks bright for this cash-flow machine.
Before diving into the specifics of what makes Vertex a great business, it’s important to recognize that healthcare stocks are exceptionally defensive. People don’t have the luxury of determining when they become ill or what ailment(s) they develop. This means drug developers like Vertex are going to generate consistent operating cash flow in any economic climate.
But what really aides Vertex’s cash-flow generation is the success it’s had developing therapies for patents with cystic fibrosis (CF). CF is a genetic disease characterized by thick mucus production that can obstruct the lungs and pancreas of a patient. As of now, CF has no cure.
Vertex has developed four generations of U.S. Food and Drug Administration-approved CF treatments, the latest of which (Trikafta) was given a green light five months ahead of its scheduled review date. Trikafta targets the most-common CF mutation (f508del) and may near $9 billion in sales this year. As the only drug developer with successful CF therapies on the market, Vertex’s cash flow is well protected.
However, Vertex is looking to generate revenue from more than just CF treatment. A little over a week ago, Vertex and development partner CRISPR Therapeutics had exagamglogene autotemcel (brand name, Casgevy) approved in the U.K. for the treatment of sickle cell disease (SCD) and transfusion-dependent beta thalassemia (TBT). Assuming it gets the green light in other key markets (including the U.S.), this drug could generate $1 billion (or more) in annual sales by 2028.
Vertex’s financial flexibility is a selling point, too. It closed out the September quarter with $13.6 billion in cash, cash equivalents, and marketable securities, representing a $2.7 billion increase from nine months prior. This is a company with more than enough capital to conduct novel research, forge collaborations, make acquisitions, and buy back its own stock.
— Sean Williams
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Source: The Motley Fool