It’s been a tumultuous start to 2022 for new and incumbent investors. Both the iconic Dow Jones Industrial Average and widely followed S&P 500 officially dipped into correction territory with declines exceeding 10%. But for the tech-focused Nasdaq Composite (^IXIC -0.19% ), the drop was even more pronounced. Between mid-November and mid-March, the famous index lost 22% of its value and briefly entered a bear market.
While big drops in major market indices can be scary in the short term, they have historically proven to be the ideal time to put your money to work. This is because every notable decline in the market, which includes the Nasdaq Composite, has ultimately been outweighed by a bull market rally.
Below are four battered growth stocks you’ll probably wish you didn’t buy in the bear market decline on the Nasdaq.
One of the smartest purchases investors can make during the Nasdaq pullback is cybersecurity stocks. CrowdStrike Holdings ( CRWD -4.20% ). Shares of the company have fallen 26% since the Nasdaq hit an all-time high in November.
The beauty of cyber security actions is that they have become a service of basic necessity. With companies moving their data online and to the cloud at a rapid rate since the pandemic began, the responsibility for protecting this data from hackers and bots increasingly falls to third-party providers like CrowdStrike.
What makes CrowdStrike its own cybersecurity company is its cloud-native security platform, known as Falcon. Falcon monitors around 1 trillion events daily and relies on artificial intelligence (AI) to keep end users safe. Because it’s built on the cloud and powered by AI, Falcon can identify and respond to end-user threats faster and more effectively than virtually all on-premises security solutions.
Over the past five years, the number of CrowdStrike subscribers has skyrocketed from 450 to 16,325, representing a compound annual growth rate of 105.1%. Equally important, your existing customers are constantly spending more. In five years, the percentage of customers with four or more cloud module subscriptions has increased from less than 10% to 69%. This is why CrowdStrike’s adjusted gross underwriting margin is almost 80%.
Another battered high-growth stock you’ll wish you didn’t buy in the dip is programmatic ad tech company PubMatic (ADVERTISING -2.46% ). PubMatic shares are down more than 30% since November and nearly 65% since hitting an all-time high in March 2021.
PubMatic’s sustainable growth driver is the constant shift of advertising dollars from print to various digital formats. What PubMatic’s cloud-based infrastructure does is monitor the sale of digital ad space to its clients (ie publishers). Interestingly, this doesn’t always mean placing the highest-priced ad in a display slot. Rather, PubMatic’s machine learning algorithms will aim to place relevant ads in front of users. This keeps advertisers happy and can ultimately increase long-term ad pricing power for long-term PubMatic customers.
Although global digital ad spend is expected to grow just over 10% annually through 2024, PubMatic has been growing considerably faster. Last year, the company’s organic growth rate was 49%, driven by programmatic ads for mobile, video and Connected TV (CTV). In fact, CTV advertising revenue grew more than six times in the fourth quarter from the prior year period.
With PubMatic profitable on a recurring basis and with sales growth forecast to approach 25% in 2022 and 2023, it’s the perfect stock to buy after a big drop on the Nasdaq.
A third battered growth stock that is crying out to be bought in this downturn is fintech giant PayPal Holdings (PPYL -2.26% ). PayPal shares have fallen 62% since July 2021.
As with CrowdStrike and PubMatic, PayPal has an obvious growth opportunity right around the corner. In this case, I am talking about digital payments. Even with increased competition in the digital payments space, PayPal reported total payment volume (TPV) of $1.25 trillion in 2021 and expects POS to grow to $1.5 trillion or more in 2022.
Arguably the most impressive aspect of PayPal is the growing number of payments from existing users. In 2020, there were fewer than 41 transactions per active account. Last year, this number exceeded 45 per active account (more than 19 billion transactions spanning 426 million active users). These figures show how quickly the payments landscape is going digital.
PayPal’s abundant cash flow has also enabled the company to launch new products and services. The company started allowing users to buy, hold, and sell cryptocurrencies in 2020, and is toying with the launch of a US stock trading platform. It used its mountain of cash to acquire the buy now solutions company and Paidy post payment also last September.
At just a hair over 20 times Wall Street’s earnings forecast for the coming year, PayPal is arguably the cheapest it’s ever been as a public company.
The fourth and final losing growth stock you’ll wish you didn’t buy in the fall is the cloud-based lending platform. upstart holdings ( UPS -0.43% ). The company’s shares have lost three-quarters of their value since October and are down nearly 55% since the Nasdaq Composite hit its all-time high.
Upstart’s claim to fame is the company’s AI-powered lending platform. The traditional loan research process can be time consuming and costly for both lenders and the party seeking a loan. Upstart’s AI-powered platform can provide on-the-spot answers (approval or denial) to approximately two-thirds of personal loan applicants. Also, because the platform is based on machine learning, people who might not otherwise qualify for a loan under the traditional screening process are sometimes approved through the Upstart process. In other words, it is democratizing access to financial services without putting lending institutions at greater risk of loan defaults.
Another thing investors should keep in mind is that 94% of fourth quarter revenue came from fees and services tied to the lending institutions it serves. In short, there is no credit exposure and no risk of loan delinquency when it comes to Upstart. This means that a rising interest rate environment should not deter investors from this fast growing company.
If you need one more good reason to be excited about Upstart (other than the company crushing Wall Street earnings expectations on a regular basis), consider acquiring Prodigy Software in 2021. This purchase allows Upstart to boost auto loans based on in IA, which is a considerably larger addressable market than personal loans.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We are motley! Questioning an investment thesis, even one of your own, helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.