Whether you’re a new investor or an incumbent, the stock market has sent a clear message over the last four months that corrections are an inevitable part of the investment cycle.
Since the beginning of the year, the referent S&P 500 and iconic Dow Jones Industrial Average entered correction territory with respective declines of at least 10%. Things have been even worse for growth-driven countries Nasdaq Composite (^IXIC 0.06%), which has lost 23% since hitting its all-time closing high in November. This officially puts the Nasdaq into its first bear market since the pandemic collapse in March 2020.
Although big drops in major indices can be scary at times, history has shown that they are the perfect time to put your money to work. All the major indices, including the Nasdaq Composite, are finally shrugging off any and all corrections.
Plus, growth stocks can be one of the smartest places to invest your money during a correction or bear market. AN Bank of America/Merrill Lynch report that examined the performance of growth stocks and value stocks over 90 years (1926-2015) found that growth stocks outperformed during recessions and periods of economic weakness.
The next three growth stocks are at least 64% below their all-time highs and are now asking to be bought at reduced levels.
Sea Limited: 78% less than its historical maximum
The first growth stock to take an outright beating as the Nasdaq swooned is the Singapore-based conglomerate. limited sea (I KNOW 7.60%). Sea shares have soared tenfold in just an 18-month period during the pandemic, but have lost 78% of their value since peaking in October.
Sea faces a number of pressing questions as global inflation rises and COVID-19 continues to wreak havoc on supply chains, especially in Asian markets. In particular, Wall Street had grown accustomed to staggering sales growth in the past two years. Looking ahead, Sea’s revenue growth is expected to slow somewhat, with annual losses expected to continue for a few more years. When big market declines occur, valuation becomes the focus, and companies with large annual losses, such as Sea Limited, often take it lightly.
But there is another side to this story that should excite patient growth investors. Specifically, Sea has three fast-growing segments that can become important cash flow generators.
At the moment, the company’s gaming division, known as Garena, is the only operating segment that generates positive earnings before interest, taxes, depreciation and amortization (EBITDA). hit mobile game Free shot helped push the number of quarterly active users (QAUs) to 654 million by the end of 2021. More importantly, 11.8% of these QAUs were paying to play Sea games. The typical pay-per-game conversion rate in mobile gaming is in the low single digits.
There is also excitement about SeaMoney, the company’s digital financial services segment. Although still relatively new, nearly 46 million QAUs were using SeaMoney products and services, such as digital wallets, in Q4. This is an intriguing segment considering that Sea operates in several emerging regions where access to basic banking services may be limited.
Lastly, there is the Shopee e-commerce platform, which has always been the most downloaded shopping app in Southeast Asia. Shopee has also gained momentum in Brazil. During the fourth quarter, Shopee had $18.2 billion in gross merchandise value (GMV) across its network. That’s more than the $10 billion in GMV recognized in all of 2018. If Sea can significantly improve e-commerce EBITDA in 2023, its share price could rebound greatly.
Green Thumb Industries: 64% down from its all-time high
A second growth stock that has been absolutely pulverized and is now crying out to be bought is cannabis MSO. green thumb industries (GTBIF 5.70%). Shares of Green Thumb are down 64% since reaching their intraday high just over a year ago.
During the first quarter of 2021, marijuana stocks were all the rage. A Democratic-led Congress, coupled with the inauguration of President Joe Biden, made it seem likely that federal legalization, or at least cannabis banking reform, would become a reality. However, with COVID-19 and geopolitical issues dominating lawmakers’ time, no reforms have passed on Capitol Hill. As a result, marijuana stocks like Green Thumb have been taken to the woodshed.
But despite the lack of federal reform, we have yet to see three quarters of all states legalize cannabis in some way. To add, 18 of these states have the green light for recreational consumption for adults. The point is that individual state regulation is providing more than enough opportunity for well-funded MSOs to thrive.
Green Thumb opened its 77th operating dispensary last month and generated retail sales in 14 states in 2021. Although it has a presence in high-value markets like California, the company has wisely chosen to enter several limited license markets. These are states that deliberately limit how many total cannabis dispensary licenses are issued, as well as to just one business. It’s a way to promote competition and ensure that companies like Green Thumb have a fair chance to build their brand(s) and gain a following.
The only factor that really makes Green Thumb special is its product mix. Only about a third of the company’s sales are derived from dried flowers. The rest comes from vaping products, infused drinks, pre-rolls, edibles and other derivatives. The key here is that derivatives have higher price points. Y better margins. These higher margins have allowed Green Thumb to generate recurring profits while most other MSOs continue to lose money.
Considering Green Thumb Industries is expected to continue to grow sales 20-25% annually, its forward price-earnings ratio of 24 makes it a bargain.
Etsy: 70% down from its all-time high
A third and final growth stock that has been hit by the Nasdaq bear market crash is the specialty online retail platform. Etsy (ETSY) 12.92%). The former pandemic superstar has lost 70% of his value since hitting an all-time intraday high five months ago.
Etsy’s biggest concerns are historically high inflation and the growing prospect of a recession in the United States. The cost of just about everything has skyrocketed, threatening to reduce consumer spending. That would be bad news for Etsy, which relies on merchants to increase its ad spend over time.
On the other hand, trying to time the inevitable downturns in the US economy is foolish. History has shown that most recessions only last a few months or a couple of quarters. By comparison, periods of economic expansion are measured in years. Buying fast-growing, innovative e-commerce players during periods of weakness and keeping them for years is probably a smart move.
Plus, Etsy brings a competitive edge to the table that should allow you to stand out. While most online retail platforms target volume, Etsy merchants are typically smaller businesses that offer unique or personalized products and services that enhance consumer engagement. There is no online retail platform that offers large-scale engagement like Etsy.
Another thing that long-term investors are excited about is Etsy’s success in turning occasional buyers into repeat buyers. A repeat shopper is defined as a shopper who makes at least six purchases over a 12-month period, with an aggregate value of those purchases of at least $200. Since the start of the pandemic, the number of regular shoppers has grown by 224%! These repeat buyers are the company’s key to extracting more ad revenue from merchants on its platform.
Even if the US enters a recession (US first-quarter gross domestic product decreased 1.4%), Etsy is well positioned to deliver sustainable double-digit sales growth. According to Wall Street’s consensus earnings forecast (which has proven fluid in recent weeks), you can buy a share of Etsy for just 21 times projected earnings in 2023. That’s about as cheap as this company has ever been.