For the first four years of this decade, Wall Street was nothing short of a seesaw. In successive years, all three major stock indexes have fluctuated between bear and bull markets, driving growth Nasdaq Composite (NASDAQINDEX: ^IXIC) who become the victims of this volatility.
But after losing 33% of its value during the 2022 bear market, the Nasdaq Composite has been off to the races over the past 17 months. Since the green flag waved in 2023, the Nasdaq Composite has risen 60% to new all-time highs. There’s absolutely no doubt that Wall Street’s growth-oriented index is in a relatively young bull market.
While some investors may be hesitant to put their money to work as the Nasdaq breaks to new highs, time has shown that the Nasdaq is an undefeated ally. While we will never know in advance when stock market corrections will begin, how long they will last, or where the bottom will be, we do know that every recession possibly (key word!) wiped out by a bull market rally. Buying great companies to position for these long-term bull market rallies can make patient investors significantly richer.
Even with the Nasdaq Composite within striking distance of an all-time high, bargains in growth stocks can still be found at the time of writing by the opportunistic investors willing to look for them.
What follows are four unforgettable growth stocks you’ll regret not buying in the new Nasdaq bull market.
Block
The first notable growth stock begging to be bought as the new Nasdaq bull market stretches its legs is a newcomer to the financial technology (“fintech”) space Block (NYSE: SQ). While competition in digital payments is increasing, Block’s fundamental operating segment and its push for digital payments are finding their respective tracks.
This “fundamental operating segment” is the company’s Square ecosystem, which offers everything from point-of-sale solutions and data analytics to corporate lending. During the quarter ending in March, the Square ecosystem saw $50.5 billion in gross purchasing volume (GPV) flow across its network, or $202 billion annually. For context, Square generated less than $7 billion in full-year GPV in 2012.
What makes the Square ecosystem such a promising cash flow driver is that its solutions resonate with an increasingly large merchant base. While 35% of GPV came from companies with at least $500,000 in annualized GPV in the first quarter of 2022, 39% of GPV in the last quarter was traced to these larger merchants. Because this is a transaction-driven platform, larger companies are Block’s ticket to higher gross profits.
The other major platform for Block is Cash App. This peer-to-peer digital payments platform ended March with 57 million active users transacting and a revenue percentage (i.e. Cash App gross profit minus buy now, pay later (BNPL) contribution, divided by Cash App inflows) which increased by 7 basis points to 1.48% compared to the same period last year.
Block has consistently generated a higher gross margin per active Cash App user than the cost to acquire new Cash App users. Leaning on BNPL’s offerings and aggressively investing in Cash App solutions (e.g. Cash App Card) are ways it can meaningfully increase its profitability and cash flow by the second half of the decade.
Starbucks
A second unforgettable stock you’ll regret not adding to your portfolio as the Nasdaq enters a new bull market is the coffee chain Starbucks (NASDAQ:SBUX). Despite recently reporting what could be called its worst quarter in years, Starbucks has undeniable competitive advantages that patient investors can take advantage of.
To start with the obvious: Starbucks has exceptionally strong pricing power. No matter how much labor or product-related inflation the company has faced, it has rarely had trouble communicating price increases to its loyal and growing base of global customers.
Perhaps the best selling point for Starbucks is its 32.8 million active U.S. rewards members, as of the end of its second fiscal quarter (March 31). In exchange for a free drink and/or food item from time to time, rewards members usually have larger ticket items, store their payment information on their smartphone, and use mobile ordering to their advantage. In other words, rewards members speed up lines and shorten wait times.
Don’t forget the innovation that Starbucks has consistently shown over the decades. While some of its newer drinks may not resonate with consumers, the revamp of the drive-thru ordering board during the pandemic, coupled with evolving food offerings, has helped the company maintain and/or increase its operating margin.
Starbucks is also cheaper than in a terribly in the long term, based on the future price-earnings ratio (P/E). The forward price-to-earnings ratio of 19 is approximately 31% below the average expected earnings figure over the past five years.
Okay
A third distinctive growth stock you’ll regret not picking up as the relatively new Nasdaq bull market takes hold is the cybersecurity company Okay (NASDAQ: OKTA). While there have been some concerns about Okta’s valuation following the acknowledgment of a security breach in October 2023, the company’s operating performance has allayed these concerns.
One of the best parts about cybersecurity is that it is no longer an optional service. Businesses of all sizes with an online and/or cloud-based presence must protect their sensitive information from robots and hackers who don’t care whether the U.S. economy is booming or struggling. As more data moves online and into the cloud, cybersecurity companies like Okta have seen steady increases in overall customer and subscription revenue.
Okta’s success in identity verification is based on its cloud-native, artificial intelligence (AI) and machine learning (ML)-driven cybersecurity platform. While this service isn’t perfect, as the October breach confirmed, an AI and ML-powered platform should eventually be more agile and significantly more efficient at identifying and responding to threats than on-premise solutions.
In the quarter ended April, the company had a subscription backlog of approximately $3.36 billion (up 19% from the prior-year period) and was struggling with $2.32 billion in cash, cash equivalents and short-term investments. Because Okta has positive cash flow, management doesn’t have to worry about aggressively investing in new identity solutions. Meanwhile, the large backlog should provide predictable operating cash flow regardless of what happens to the U.S. economy in the coming year.
Finally, acquiring Auth0 in 2022 could really open new doors in overseas markets for Okta, expanding its reach in the $30 billion consumer identity market.
Metaplatforms
The fourth unforgettable growth stock you’ll regret not buying into the new Nasdaq bull market is none other than a social media expert Metaplatforms (NASDAQ: META). Even though Wall Street wasn’t thrilled with Meta raising its spending forecasts, this is an industry leader with an extensive history of successful monetization efforts.
The basis for Meta remains the social media resources. It is the parent company of Facebook, the most visited social site in the world, as well as WhatsApp, Instagram, Threads and Facebook Messenger. These extremely popular apps, along with Meta’s other social media assets, collectively attracted 3.24 billion daily active users in the first quarter. No social media platform comes close to offering access to as many daily active users as Meta – and this is often reflected in ad pricing.
This is a good time to mention that Meta benefits from disproportionately long periods of economic growth. Although recessions are an inevitable part of the economic cycle, they disappear quite quickly. By comparison, a company like Meta, which generates almost 98% of its revenue from advertising, is reaping the benefits of economic expansions that last for years.
Another reason to trust CEO Mark Zuckerberg’s company is its deep pockets. Meta Platforms ended March with more than $58 billion in cash, cash equivalents and marketable securities, and has generated more than $76 billion in operating cash flow over the past four quarters. With a wealth of cash at its disposal, Meta can comfortably invest in AI and its opposing ambitions, even with the realization that these innovations are likely years away from becoming major revenue generators.
The final piece of the puzzle is Meta’s cheap valuation. Despite a five-fold increase since the 2022 bear market low, Meta is still trading at less than 13 times estimated 2025 cash flow. This represents a 14% discount to the average forward multiple to cash flow of the past five years.
Should you invest $1,000 in Block now?
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Sean Williams holds positions in Block and Meta Platforms. The Motley Fool holds and recommends positions in Block, Meta Platforms, Okta, and Starbucks. The Motley Fool has a disclosure policy.
4 Unforgettable Growth Stocks You’ll Regret Not Buying in the New Nasdaq Bull Market Originally published by The Motley Fool
