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For the lion's share of this decade, volatility has dominated Wall Street. Starting in 2020, the three major stock indices began swinging between bear and bull markets in consecutive years (not including 2024), with growth stocks focusing on… Nasdaq Composite (NASDAQ: ^IXIC) See the largest percentage fluctuations.
After losing a third of its value during the 2022 bear market, the Nasdaq Composite has jumped 57% higher since the start of 2023 and surpassed its previous high. There is no doubt that the innovation-fueled index is still in the early stages of transformation Bull market.
But that's the thing about Wall Street's major indices: value can always be revealed, no matter how high stock prices as a whole are. Even as the Nasdaq soars to new highs, patient investors can still find growth stocks trading at a discount.
Here are four amazing growth stocks you'll regret not buying in this new Nasdaq bull market.
the alphabet
The first amazing growth stock you'll kick yourself for not grabbing the Nasdaq Composite in a new bull market is a member of the “Magnificent Seven.” the alphabet (Nasdaq:Google)(NASDAQ:GOG). Alphabet is the parent company of the Internet search engine Google and the streaming platform YouTube, among its many ventures.
The only reason Alphabet hasn't completely blown the roof off its previous high in 2021 has to do with the uncertainties associated with the advertising industry. In 2023, approximately 76% of Alphabet's net sales of $86.3 billion are due to its broad advertising platforms. With a couple of money-based metrics (e.g., M2 money supply) and recession forecasting tools indicating a potential downturn in the US economy, advertising-reliant companies like Alphabet are at risk of weakness in the near term.
But although recessions are a normal part of the economic cycle, they end relatively quickly. Only three recessions since the end of World War II have exceeded the one-year mark, and none have lasted more than 18 months. Relatively speaking, most growth periods last for several years, which is great news for companies that rely on advertising.
Working Alphabet “Heart and Soul” It is still an online search engine. In February, Google had a 92% share of global Internet searches, effectively a monopoly. Being the undisputed leader means that companies are willing to pay a premium to Google to get their message(s) in front of users.
But the latter half of the decade should see Google Cloud play a larger role in Alphabet's cash flow generation. Google Cloud is the world's No. 3 cloud infrastructure services platform by spending (as of September, according to Canalys), and it just completed its first year of profitability. Cloud service margins are stronger than advertising margins, leading to a significant increase in Alphabet's operating cash flow in the coming years.
The icing on the cake is that Alphabet is valued at 13.5 times its cash flow estimates for the coming years, which represents a 24% discount to the average cash flow multiple over five years.
Lovesac
Amazing deals can be found at under-the-radar companies, too. The second amazing growth stock you'll regret not adding to your portfolio as the Nasdaq Composite hits its stride is Furniture Stocks Lovesac (NASDAQ:LOVE). YesYou said “furniture stock” and “growth stock” in the same sentence.
Furniture companies are typically slow-growing, rely heavily on brick-and-mortar stores, and purchase their goods from the same small group of wholesalers. Lovesac is completely changing this perception with their furniture and sales approach.
What clearly sets Lovesac apart are the company's products. Specifically, about 90% of its revenue comes from selling “sactionals” — modular sofas that buyers can rearrange in dozens of ways to fit most living spaces. The threads used in the split caps are made entirely from recycled plastic water bottles, and buyers have over 200 different caps to choose from. No other product offers this combination of functionality, optionality and environmental friendliness in the furniture space.
Another thing essential to Lovesac's continued success is targeting affluent consumers. Lovesac's unique products come with a variety of upgrade options, including built-in surround sound and wireless charging, which can push the price of the products much higher than a traditional sectional sofa. Fortunately, this isn't a problem, since its core high-income customers are rarely bothered by minor economic disruptions.
What ties everything together at Lovesac is its comprehensive sales platform. While it has a traditional presence in 40 states, it relies significantly on pop-up showrooms, and brand-name partnerships (e.g. Costco wholesale And Best buy), and digital sales, as a way to reduce overhead and enhance profit margins.
Despite low double-digit sales growth, Lovesac shares are valued at just 10 times next year's earnings.
Western Digital
The third eye-catching growth stock you'll regret not buying as the Nasdaq bull market finds its footing is Storage Solutions Specialist Western Digital (Nasdaq: WDC).
There are often two opposite trends prevailing for data warehousing companies. The first (as expected) is the health of the US economy. Technology stocks are typically cyclical, so any potential for a downturn in the economy will likely impact the storage industry.
The other is the excessive enthusiasm of storage companies. When prices improve, they tend to flood the market with supply and hurt their margins.
The good news for Western Digital is that it should enjoy exceptional demand throughout the remainder of the decade on two fronts. First, enterprise cloud spending is arguably still at an early stage of its ramp-up. Researchers at Fortune Business Insights expect the global cloud computing market to grow at an annual rate of 20% through 2030, eventually reaching $2.43 trillion. As enterprise clouds expand, the need for storage solutions grows.
Additionally, Western Digital's NAND flash memory solutions are ideally positioned to capitalize on the growing cloud needs of enterprises. The high transfer rates associated with NAND flash memory may make it a staple of the enterprise data center by the end of the decade.
Western Digital could also benefit from the rise of artificial intelligence (AI). Analysts at PwC believe that AI could add more than $15 trillion to global GDP by 2030. As the computational needs of AI-accelerated data centers grow, there will be increased demand for storage solutions from Western Digital.
The evaluation also makes sense. With sales expected to grow nearly 50% over the next four years, Western Digital's forward price-to-earnings ratio of 11 is a bargain.
quickly
The fourth surprising growth stock you'll regret not buying in the new Nasdaq bull market is Edge Computing quickly (NYSE: FSLY). The company is best known for its Content Delivery Network (CDN), which moves data from the edge of the cloud to end users as quickly and securely as possible.
The reason Fastly has underperformed over the past three years is because of its bottom line. Wider-than-expected losses and hefty stock-based compensation under the company's former CEO, Joshua Bixby, turned investors away from this growth story. However, the arrival of Todd Nightingale as the company's new CEO could change everything.
Nightingale officially took over in September 2022 and has filled in key missing pieces of the puzzle. He has previously served as the leader of Cisco SystemsEnterprise Networking and Cloud sector. Not only does he have a deep understanding of the initiatives Fastly must address to grow an organization's customer base, he knows where costs can be reduced to quickly move toward recurring profitability. Consensus estimates suggest Fastly will reach recurring earnings in 2025.
Like Western Digital, Fastly is set to benefit from the ongoing transformation of enterprise data online and in the cloud. As everything becomes more digital, end-user demand for content increases. Since Fastly is a usage-based platform, this is a recipe for higher gross profit.
Another reason long-minded investors are excited about Fastly's prospects is that many of its key performance indicators point upward. Average enterprise customer spending has risen 16% to $880,000 since March 31, 2022, while the dollar-based net expansion rate (DBNER) has remained a molasses-like 118% to 123% range over the past eight quarters. What DBNER shows is that existing customers spend between 18% and 23% more on an annual basis.
Fastly's expected annual earnings growth rate of 30% over the next five years makes it a leading growth stock to own.
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Susan Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Sean Williams He has positions at Alphabet, Fastly, Lovesac, and Western Digital. The Motley Fool has positions in and recommends Alphabet, Best Buy, Cisco Systems, Costco Wholesale, and Fastly. The Motley Fool recommends Lovesac. The Motley Fool has Disclosure policy.
4 Amazing Stocks You'll Regret Not Buying In The New Nasdaq Bull Market Originally published by The Motley Fool
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