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4 Spectacular Growth Stocks You’ll Regret Not Buying in the New Nasdaq Bull Market

For the lion’s share of this decade, volatility has reigned supreme on Wall Street. Beginning in 2020, all three major stock indexes began to fluctuate between bear and bull markets in consecutive years (not including 2024), with growth stocks concentrating. Nasdaq Composite (NASDAQINDEX: ^IXIC) we see the largest percentage fluctuations.

After losing a third of its value during the 2022 bear market, the Nasdaq Composite has catapulted 57% higher since the start of 2023, removing its previous high. There’s no doubt that the innovation-driven index is in the early stages of a bull market.

A statue of a bull on top of a financial newspaper looking at a volatile pop-up stock chart.

Image source: Getty Images.

But here’s the thing about Wall Street’s major indexes: Value can always be uncovered, no matter how expensive the stock as a whole may seem. Even as the Nasdaq shoots to new highs, patient investors can still find growth stocks trading at a discount.

What follows are four spectacular growth stocks you’ll regret not buying in the new Nasdaq bull market.

Alphabet

The first awesome growth stock you’ll kick yourself if you don’t jump into a new bull market with the Nasdaq Composite is a member of “Magnificent Seven.” Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG). Alphabet is the parent company of Internet search engine Google and streaming platform YouTube, among many companies.

The only reason why Alphabet didn’t completely blow the previous record in 2021 has to do with uncertainties related to the advertising industry. In 2023, about 76% of Alphabet’s $86.3 billion in net revenue came from its massive advertising platforms. With a number of money-based measures (e.g. M2 money supply) and recession forecasting tools pointing to a possible downturn in the US economy, ad-driven companies like Alphabet are at risk of near-term weakness.

But while recessions are a normal part of the economic cycle, they are over relatively quickly. Only three recessions since the end of World War II have reached the one-year mark, and none have exceeded the eighteen-month mark. By comparison, most growth periods last several years, which is great news for ad-driven businesses.

The operational “heart and soul” of Alphabet remains its Internet search engine. In February, Google accounted for 92% of global Internet searches, which is a practical monopoly. Being the undisputed leader means that companies are willing to pay Google a premium to get their message(s) in front of users.

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But in the second half of the decade, Google Cloud should play a bigger role in Alphabet’s cash flow generation. Google Cloud is the world’s third-largest cloud infrastructure service platform by spend (as of September, according to Canalys) and has just completed its first year of profitability. Cloud service margins are more robust than advertising margins, which should lead to a significant boost to Alphabet’s operating cash flow in the coming years.

The icing on the cake is that Alphabet is valued at 13.5 times forward cash flow estimates, which represents a 24% discount to its five-year average cash flow.

Loveac

There are also great deals to be found at under-the-radar companies. The second spectacular growth stock you’ll regret not adding to your portfolio as the Nasdaq Composite makes its debut is furniture stocks Loveac (NASDAQ: LOVE). YesI said “furniture stocks” and “growth stocks” in the same sentence.

Furniture companies tend to grow slowly, rely heavily on brick-and-mortar stores, and purchase their goods from the same small group of wholesalers. Lovesac completely changes this perception with its furniture and sales approach.

The obvious differentiator for Lovesac is 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 yarn used in functional covers is made entirely from recycled plastic water bottles and buyers can choose from more than 200 different covers. No other product offers this combination of functionality, capabilities and environmental friendliness in the furniture space.

Another thing that is critical to Lovesac’s continued success is that it targets affluent consumers. Lovesac’s unique products come with an assortment of upgrade options, including built-in surround sound and wireless charging, which can push the price of sactionals far above that of a traditional sectional sofa. Fortunately, this is not a problem, as the most important, higher-earning customer is rarely deterred by minor economic disruptions.

What ties everything together for Lovesac is its omnichannel sales platform. While it has a traditional brick-and-mortar presence in 40 states, it relies primarily on pop-up showrooms and brand partnerships (e.g. Costco Wholesale And Best Buy) and digital sales, as a means to reduce overhead costs and increase margins.

Despite low double-digit revenue growth, Lovesac’s shares are valued at just ten times next year’s earnings.

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An engineer installing a hard drive into a data center server tower.An engineer installing a hard drive into a data center server tower.

Image source: Getty Images.

West Digital

The third eye-catching growth stock you’ll regret not buying as the Nasdaq bull market takes hold is a storage solutions specialist West Digital (NASDAQ: WDC).

There are often two overriding headwinds for data storage companies. The first is (unsurprisingly) the health of the US economy. Technology stocks tend to be cyclical, so any potential for a downturn in the economy will likely weigh on the storage sector.

The other is the overzealousness of storage companies. When prices improve, they tend to flood the market with supply and hurt their own margins.

The good news for Western Digital is that demand will be exceptional on two fronts for the rest of the decade. First, enterprise cloud spending is still in the early stages of its growth. Researchers at Fortune Business Insights expect the global cloud computing market to grow 20% annually through 2030, eventually reaching $2.43 trillion. As the enterprise cloud grows, so does the need for storage solutions.

To add to this, Western Digital’s NAND flash memory solutions are ideally positioned to take advantage of growing enterprise cloud needs. The faster transfer speeds associated with NAND flash memory could make it an important part of an enterprise data center by the turn of the century.

Western Digital can also benefit from the rise of artificial intelligence (AI). Analysts at PwC believe that AI could add more than $15 trillion to global gross domestic product by 2030. As the computing needs of AI-accelerated data centers grow, Western Digital’s storage solutions will increasingly be in demand.

The valuation also makes sense. With revenue expected to grow nearly 50% over the next four years, Western Digital’s price-to-earnings ratio of 11 is a bargain for the next few years.

Fast

A fourth spectacular growth stock you’ll regret not buying in the new Nasdaq bull market is the edge computing company Fast (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 its bottom line. Larger-than-expected losses and significant stock-based compensation under the company’s previous 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.

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Nightingale officially took over in September 2022, filling in the key pieces of the puzzle that were missing. He previously worked as a leading actor for Cisco systems‘ Enterprise Networking and Cloud segment. Not only does he have a strong understanding of what initiatives Fastly needs to undertake to grow its enterprise customer base, but he also knows where costs can be reduced to bring Fastly to recurring profitability. Consensus estimates call for Fastly to achieve recurring profits by 2025.

Like Western Digital, Fastly will benefit from the steady shift of business data online to the cloud. As everything becomes more digital, end-user demand for content grows. Because Fastly is a usage-driven platform, this is a recipe for higher gross profit.

Another reason long-term investors may be excited about Fastly’s prospects is that many of its key performance indicators are pointing higher. Average spend by corporate customers has risen 16% to $880,000 since March 31, 2022, while the dollar-based net expansion rate (DBNER) has remained stuck between 118% and 123% over the past eight quarters. What DBNER shows is that existing customers spend between 18% and 23% more on an annual basis.

Fastly’s projected annualized earnings growth of 30% over the next five years makes it one of the best growth stocks to own.

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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Sean Williams holds positions in Alphabet, Fastly, Lovesac and Western Digital. The Motley Fool holds positions in and recommends Alphabet, Best Buy, Cisco Systems, Costco Wholesale, and Fastly. The Motley Fool recommends Lovesac. The Motley Fool has a disclosure policy.

4 Spectacular Growth Stocks You’ll Regret Not Buying in the New Nasdaq Bull Market was originally published by The Motley Fool

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