Whether you’re a relatively new investor or you’ve put your money to work on Wall Street for decades, there’s never been a year like 2022. So far, the bond market has had its worst year ever. history, while the broad base S&P500which is often considered the most comprehensive barometer of the health of the U.S. stock market, fell more by percentage in the first six months of the year than it had since 1970.
But the worst pain of all has been reserved for tech-dependent people Nasdaq Compound (^IXIC -0.70%)which plunged as much as 38% peak-to-peak after its November 2021 high. the worst.
While bear market declines can be scary in the short term, they are historically the perfect time for investors to pounce. This is because every bear market throughout history has eventually been put in the rearview mirror by a bull market.
In particular, a significant Nasdaq pullback is the perfect excuse to go bargain-hunting for growth stocks. Below are five exceptionally cheap growth stocks you’ll regret not buying on the downside.
The first super-cheap growth stock begging to be bought as the Nasdaq plummets is a cloud-based customer relationship management (CRM) software provider Selling power (RCMP 0.75%). For the curious, CRM software is used by consumer-facing businesses to oversee product and service issues, manage online marketing campaigns, and run predictive sales analytics for new products and services.
While we’re seeing a slight slowdown in demand for CRM software as rapidly rising interest rates temper growth expectations, that doesn’t change the fact that Salesforce is king of the hill in the CRM space. According to IDC, Salesforce accounted for nearly 24% of global CRM spending in 2021, the company’s ninth consecutive year as the world’s leading provider of cloud-based CRM software. Moreover, its market share has been increasing every year for more than half a decade.
While Salesforce has shown it can grow organically at a healthy pace, CEO and co-founder Marc Benioff has also overseen several acquisitions. These buyouts not only diversify Salesforce’s revenue stream, but also aim to expand the company’s ecosystem and provide new cross-selling opportunities.
With a price-to-earnings (P/E) ratio of 23 for the year ahead, Salesforce is cheaper today than at any time in its publicly traded existence.
A second cheap growth stock you’ll blame yourself for not buying during the Nasdaq bear market decline is biotech stock. Exelixis (EXEL -4.54%).
The first thing to understand about biotech stocks is that they are very defensive. Even though rising interest rates will make access to capital a bit more expensive, patients will still need prescription drugs, regardless of how poorly the US economy or stock market performs. This allows drug developers to predict sales quite accurately year after year.
What makes Exelixis so special is Cabometyx, the company’s blockbuster cancer drug, which is approved to treat first- and second-line renal cell carcinoma and advanced, previously treated hepatocellular carcinoma. While these indications bring in north of $1 billion in annual sales, it’s the company’s six dozen ongoing clinical trials that have the potential to expand Cabometyx’s label and further increase sales and cash flow.
Don’t overlook Exelixis’ track record either. With approximately $2.1 billion in cash, cash and cash equivalents and restricted investments, it has enough capital to forge collaborative partnerships (which it does) and advance new compounds. in clinical trials.
At 16x Wall Street consensus earnings per share for 2023 and touting double-digit sales growth, Exelixis is a clear-as-day bargain.
The third exceptionally cheap growth stock you’ll regret not adding to your portfolio during the Nasdaq bear market decline is the online services market. Fiver International (FVRR -1.28%).
Arguably the biggest catalyst for Fiverr is the permanent shift we’ve seen in the workforce in the post-pandemic world. Even though some people have returned to the office, more than ever are working from home. This thriving and sustainable remote work environment is playing into freelance marketplace platforms like Fiverr.
But it’s not just macro labor trends that favor Fiverr (say, three times faster!). It’s the platform itself and the company’s participation rate. As I recently touted, Fiverr freelancers present their work with an all-inclusive price. This differs from most online service marketplaces where freelancers charge an hourly rate, but the total cost of a project is less clear. In other words, price transparency helps attract buyers to Fiverr’s platform, as evidenced by the steady increase in spend per buyer.
Additionally, Fiverr’s take-up rate – how much it keeps from each deal traded on its platform – is 30%, nearly double that of its nearest competitors. That means better margins and better profitability as revenue grows.
While a forward P/E of 29 might not sound cheap, it’s an incredible deal considering Fiverr’s superior growth potential over the next five years.
Another bargain-priced growth stock you’ll regret not picking up during the Nasdaq bear market decline is the cloud-based adtech stock PubMatic (PUBM -1.32%). Even though ad spend tends to decline when economic uncertainty hits, PubMatic has a host of competitive advantages in its sails.
One of PubMatic’s most exciting competitive advantages in programmatic advertising is being a sell-side provider (SSP). SSPs help publishers sell their digital signage space. Thanks to a number of acquisitions, there aren’t many large-scale SSPs to choose from, leaving PubMatic to grow at a rate well above the industry average.
PubMatic’s digital focus is also perfectly positioned to capitalize on the shift of advertising dollars from print to mobile, video and connected television (CTV). As more streaming services introduce ad-supported platforms, CTV should help PubMatic easily leapfrog its peers in the growth department.
Additionally, PubMatic has gone the extra mile to design and develop its cloud-based programmatic advertising infrastructure. Since he is not dependent on a third party, more of his income will go directly to his bottom line.
Similar to Fiverr, its forward P/E of 30 may not seem cheap. However, with a sustained growth rate of over 20% during boom times, a focus on CTV and a debt-free balance sheet, PubMatic looks like a steal.
The fifth and final exceptionally cheap growth stock you’ll regret not buying during the Nasdaq bear market decline is Alphabet (GOOGL -0.94%) (GOOG -0.94%)the parent company of the Internet search engine Google.
Like PubMatic, Alphabet is an advertising-focused company. As economic growth slows, advertisers tend to cut spending (at least temporarily). But that’s no reason to avoid Alphabet. For more than two years, Google has accounted for no less than 91% of the global Internet search share on a monthly basis. Having a true monopoly more often than not gives Google superior ad pricing power. This segment is effectively Alphabet’s cash cow.
But the fun part for long-term Alphabet shareholders is seeing where the company reinvests that money. Part of it went to streaming platform YouTube, which is the second most visited social site on the planet. The successful monetization of YouTube Shorts is expected to eventually help boost YouTube’s annual ad sales to over $30 billion.
There’s also the Google Cloud cloud infrastructure services segment, which accounted for 9% of global cloud services spending in the third quarter, according to Canalys. Cloud spending is still in its infancy, and it tends to generate juicier operating margins than advertising. By 2025, it wouldn’t be surprising if Google Cloud generated a significant portion of Alphabet’s operating cash flow.
Over the past five years, Alphabet has traded at an average multiple of 19 times cash flow. Investors can buy shares now for about 10 times Wall Street’s projected cash flow for the company in 2024.
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