Since the beginning of 1950, the broad-based S&P 500 has endured 39 separate double-digit-percentage declines. That works out to one every 1.85 years — and this is most certainly one of those years. Through the first six months of 2022, the S&P 500 delivered its worst return in more than a half century.
And yet, things have been even worse for the technology-focused Nasdaq Composite (^IXIC), which was largely responsible for lifting the broader market to record highs in 2021. On a peak-to-trough basis, the Nasdaq has plunged as much as 38% since hitting its record high one year ago.
But therein lies the opportunity for investors. Even though stock market corrections, and even bear markets, are a normal part of investing, so is the fact that the major indexes recoup their losses (and then some) over the long run. Eventually, the Nasdaq bear market will be nothing more than a memory.
It's a particularly good time for opportunistic investors to pounce on innovative growth stocks that have been beaten down by poor market sentiment. What follows are three jaw-dropping growth stocks you'll regret not buying on the Nasdaq bear market dip.
Alphabet
The first surefire stock you'll regret not buying as the Nasdaq plummets is Alphabet (GOOGL) (GOOG), the parent of streaming platform YouTube and internet search engine Google. Even with ad revenue taking a hit as the likelihood of a U.S. recession grows, Alphabet's competitive advantages stand out like a beacon for opportunistic investors.
The key for Alphabet has long been its utter dominance in internet search. Based on data provided by GlobalStats, Google has accounted for 91% to 93% of worldwide search for more than two years. This virtual monopoly leads to substantial ad-pricing power and a mountain of operating cash flow that the company can use to reinvest in other high-growth initiatives.
One of these initiatives is YouTube. Easily one of the best acquisitions in history — Google acquired YouTube in 2006 for $1.65 billion — YouTube is the second-most-visited social media platform on the planet. With Alphabet looking at ways to further monetize YouTube Shorts, the ad revenue needle for YouTube should point significantly higher over the long term.
There's also Google Cloud, which is the world's third-leading cloud infrastructure service provider. Cloud spending is still, arguably, in its early stages, and Alphabet should be able to sustain a close-to-40% annual growth rate as businesses shift data online and into the cloud.
Historically speaking, Alphabet has never been cheaper.
Bark
A second remarkable growth stock that's begging to be bought during the Nasdaq bear market decline is dog-focused products and services company Bark (BARK). Despite Bark continuing to lose money, the company's innovation, coupled with industry advantages, should allow this small-cap stock to shine.
The first factor working in Bark's favor is that U.S. pet expenditures are practically recession-proof. It's been more than a quarter of a century since year-over-year spending on pets declined in the United States. Whether it's pet food, veterinary care, or other services, such as pet insurance, owners are willing to open up their wallets a bit wider each year to ensure the health and happiness of their furry, gilled, feathered, or scaled family member(s).
Bark's not-so-subtle secret that should allow it to outperform most pet retail stocks is that its operating model is primarily driven by direct-to-consumer sales. Although retail order timing can fluctuate a bit (as happened during its most recent quarter), traditional commerce sales that occur in brick-and-mortar stores usually make up only 10% to 15% of total revenue. That means the bulk of sales are coming from lower-overhead subscription services designed to generate predictable cash flow and gross margin of around 60%.
On the innovation front, Bark has had plenty of add-on sales success since introducing Bark Bright for canine dental needs, and should see similar success from the ramp up of Bark Eats, which tailors dry-food diets for select dog breeds. These add-on sale opportunities can really bolster gross margin.
Okta
The third jaw-dropping growth stock you'll regret not scooping up during the Nasdaq bear market dip is cybersecurity stock Okta (OKTA). Although Okta's integration of Auth0 has hit a few near-term speed bumps and led to larger quarterly losses, the future is increasingly bright for this identity verification provider.
Similar to Bark, Okta is leaning on macro trends that are very much to its benefit. Just because Wall Street or the U.S. economy hits a rough patch, it doesn't mean robots and hackers take time off from trying to access or steal sensitive information. As time passes and businesses move their data into the cloud, the onus of protecting this information is increasingly falling to third parties like Okta.
As I've alluded previously, Okta's cloud-native identity verification security platform is a big advantage. Okta's reliance on artificial intelligence allows its solutions to grow more efficient at identifying and responding to potential threats over time. Since cybersecurity has evolved into a basic necessity service, double-digit sales growth should be the expectation for many years to come.
Eventually, Okta will benefit from the Auth0 buyout as well. In spite of higher near-term integration costs, Auth0 provides a means for Okta to enter the European market. International expansion is a necessary step that should help Okta sustain a double-digit growth rate.
Originally published on Fool.com
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Sean Williams has positions in Alphabet (A shares) and Bark Inc. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Green Thumb Industries, Okta, and Sea Limited. The Motley Fool has a disclosure policy.
