Nasdaq bear market: 3 unstoppable stocks you’ll regret not buying on the downside
LLast year, the stock market proved virtually unstoppable, peaking in benchmark declines S&P500 only 5%. But 2022 has been a whole different beast.
Both the S&P 500 and the iconic Dow Jones Industrial Average hit double-digit percentage declines in March, while Nasdaq Compound (NASDAQ INDEX: ^IXIC) lose up to 22% of its value between mid-November and mid-March. This 22% drop officially placed the Nasdaq in a bear market.
With the pandemic-related market crash that unfolded for five weeks in the first quarter of 2020 still fresh in the minds of many investors, just hearing the phrase “bear market” can be disconcerting. . However, history has shown time and time again that making your money work during a bear market is a stroke of genius. This is because every bear market is eventually erased by a bull rally. In other words, a bear market is a good time for long-term investors to shop.
A number of high-quality companies are now valued at a lower price following the Nasdaq Composite’s slump. What follows are three unstoppable stocks you’ll regret not buying on the downside.
The first unstoppable stock you’ll be kicking off if you don’t buy the dip is the cloud-based lending platform Assets received (NASDAQ: UPST). Company shares dropped by almost 80% compared to their all-time high last year.
The big worry for skeptics with Upstart is what effect rapidly rising interest rates might have on its growth potential and bottom line. With the US inflation rate hitting a 40-year high of 8.5% in March, it’s pretty obvious that the country’s central bank is going to aggressively hike rates in the coming months. This could stifle demand for all types of loans and therefore affect Upstart’s operating model. However, I submit that these concerns are greatly exaggerated.
One of the biggest benefits of Upstart’s platform is that it’s driven by artificial intelligence (IA). Without digging too deep into the weeds, Upstart’s lending platform relies on data from all previously approved loans to quickly approve or deny an applicant. About two-thirds of loan applicants receive an immediate response with Upstart, saving consumers and businesses time and money.
In addition to being fast, Upstart’s AI-powered platform has helped expand loan availability to applicants who would not have qualified through a traditional verification process. Despite expanding the scope of loan approvals, Upstart-approved applicants are not showing declining on-time payments. This makes it even more likely that lending institutions will rely on Upstart’s platform as interest rates rise.
Investors should also be aware that Upstart has no credit exposure. During the fourth quarter, 94% of revenues came from fees and services related to credit institutions. If the US economy contracts, Upstart is not responsible for any default.
Perhaps most exciting of all, Upstart’s 2021 acquisition of Prodigy Software allows it to enter the much larger auto loan origination market. There are plenty of opportunities for Upstart to thrive, and with the company highly profitable on a recurring basis, now is the perfect time for opportunistic investors to strike.
Another unstoppable stock you’ll regret not buying is the cloud-based programmatic ad tech company. PubMatic (NASDAQ: PUBM). Shares of this fast-growing small-cap company have fallen 63% since hitting an all-time high in March 2021.
The big concern with PubMatic, like Upstart, is the likelihood of an economic downturn caused by rapidly rising interest rates. Advertising spending tends to boom when the US and global economy is expanding, and it declines when economic contractions and recessions hit. Fortunately, PubMatic has a number of factors working in its favor that should lead to sustainable annual sales growth of over 20%.
First, advertising expenditure is moving away from print and towards various digital channels. PubMatic specializes in the sale of digital display space for publishing houses. While global digital ad spend has been growing at just over 10% annually, PubMatic has seen an organic growth rate of 49% in 2021. In each of the next two years, expect its organic growth of approximately 25%.
PubMatic’s platform also relies on machine learning algorithms designed to satisfy advertisers and their customers. These algorithms do not necessarily place the most expensive ad in an available display space. On the contrary, PubMatic’s platform aims to put the most relevant content in front of users, which satisfies advertisers and allows publishers to benefit from better ad pricing power over time.
Even better, PubMatic has built its infrastructure based on the cloud and therefore does not have to rely on third parties. These investments are beginning to pay off in the form of gross margin up in full year as infrastructure use increases.
This highly profitable business looks like a screaming buy on any major Nasdaq drop.
A third and final unstoppable stock that provides no-brainer buying during a Nasdaq bear market decline is Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG). Shares of the company have fallen 16% since mid-November.
Alphabet, the parent company of internet search giant Google and streaming platform YouTube, is suffering from the same uncertainties plaguing Upstart and PubMatic. Alphabet is an advertising-focused company, and any economic downturn would be seen as negative for domestic and global ad spend.
On the other hand, Alphabet is not your ordinary advertiser. For example, the internet search engine Google has counted 91% to 93% of all global internet searches for at least the last year, based on data from GlobalStats. With such a dominant presence, it’s no surprise that Google is able to wield such incredible advertising pricing power. With the exception of a single quarter at the height of the pandemic, Google has consistently increased sales by double digits year over year.
But what investors need to understand is that Alphabet’s operating cash flow growth goes far beyond simple Internet research. YouTube, for example, has become the second most visited social site on the planet, based on monthly active users. YouTube’s annual ad revenue stream rate is nearly $35 billion.
There’s also Google Cloud, which is Alphabet’s cloud infrastructure branch. Google Cloud is #3 globally in ad spend on cloud infrastructure and has grown sales by 45%-50% fairly consistently. The key here is that cloud services margins are significantly higher than advertising margins. Google Cloud is expected to play a significant role in potentially doubling Alphabet’s operating cash flow per share by mid-decade.
From FAANG Sharesit can be argued that Alphabet is currently the best offer.
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Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Sean Williams owns PubMatic, Inc. The Motley Fool owns and endorses Alphabet (A shares), PubMatic, Inc. and Upstart Holdings, Inc. The Motley Fool endorses Alphabet (C shares). The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.