It's been quite a journey for the investment community since the beginning of this decade. The major stock indexes have been in bear and bull markets for four consecutive years, but optimists now appear to be clearly in control.
These fluctuations are particularly noticeable in companies driven by growth stocks. Nasdaq Composite (NASDAQINDEX: ^IXIC). After losing 33% of its value in the 2022 bear market, the Nasdaq Composite Index has surged 57% since the beginning of 2023, firmly entering a new bull market.
But much of the Nasdaq's rise has been driven by the Magnificent Seven, meaning there may still be bargains to be found among growth stocks. Investors with a long-term focus should actively seek them out.
Here are four exceptional growth stocks you'll regret not buying in the new Nasdaq bull market.
visa
The first high-octane growth stock that has historically been a genius buy on any downturn and is an incredibly attractive stock to own in the young Nasdaq bull market is Payment Processors. visa (New York Stock Exchange:V).
As a multi-year shareholder of Visa, a major payment intermediary, the only bad thing I can say about the company is that it is highly cyclical. A downturn in the U.S. economy is normal and inevitable. When the next recession hits, consumer and business spending is expected to decline, hurting Visa's ability to collect fees from merchants.
The flip side of this coin is that the U.S. economy has expanded for significantly longer periods than it has contracted. After World War II, he has had two periods of growth longer than 10 years, but in the past 78 years he has had 12 recessions that have never lasted more than 18 months. Visa is best placed to benefit from a long period of economic expansion.
The company is also capitalizing on growth opportunities in developed and emerging markets. For example, it is the overwhelming market share leader in credit card network purchases in the United States (the world's largest consumer market). The company also has sufficient capital and substantial runway to organically expand its payments infrastructure into underbanked emerging markets (such as Southeast Asia, Africa, and the Middle East) and to expand into high-growth regions. . It acquired Visa Europe in 2016. Cross-border trade volumes rose 16% year-on-year in the quarter ended December.
As we've previously pointed out, management's decision to avoid financing is the main reason Visa's profit margins continue to exceed 50%. Some of our payment processors also act as lenders, exposing them to potential credit delinquencies and loan losses in the event of a recession. Visa is not a lender, so you don't have to worry about securing capital.
Visa's forward price/earnings (PER) ratio of 24.7 times corresponds to a 15% discount on the company's expected future earnings multiple over the past five years.
Pubmatic
As the Nasdaq proverbially stretches its legs in a new bull market, ad tech companies are the second outlier growth stock to blame for not adding to your portfolio. Pubmatic (NASDAQ:PUBM). PubMatic's cloud-based programmatic advertising platform helps publishers sell digital display space.
Like Visa, the health of the U.S. economy tends to be the biggest headwind for advertising companies like PubMatic. Companies don't hesitate to cut their advertising budgets at the first sign of trouble. But as mentioned earlier, the U.S. economy has much more time to grow than to slow down. This is great news for opportunistic long-term investors in ad-driven stocks.
This year should be a particularly good year for advertising companies, thanks to the US election. Based on GroupM estimates, political ad spending is expected to reach $15.9 billion in 2024, an increase of 31% from the previous election cycle in 2020. PubMatic specializes in this as more advertising dollars than ever are shifting to digital channels. is ideally positioned to benefit from this increase in political ad spending.
Another reason investors can expect PubMatic to outperform over the next few years is due to management's (in retrospect) wise decision to build its own cloud-based programmatic advertising platform. . While relying on a third-party provider may be faster and cheaper, choosing to develop your own infrastructure means you can secure more revenue as your business grows. Simply put, it should lead to superior operating margins.
Despite being a small-cap company, PubMatic is well-funded. The company ended 2023 with no debt and $175.3 million in cash and repurchased more than $59 million worth of common stock last year. If a recession materializes, PubMatic's balance sheet is ready.
warner bros discovery
The third great growth stock to buy on the Nasdaq during the early stages of the bull market is a media giant. warner bros discovery (NASDAQ:WBD). Although the company's revenue growth doesn't meet the standard definition of a “growth stock,” Wall Street expects the company to grow its profits at an annual rate of 20% through 2028, giving the traditional media giant a It definitely puts it on the map.
Not to sound like a broken record, but economics is important. Weak ad spending is weighing on Warner Bros. Discovery's legacy TV division. Additionally, the focus on streaming has resulted in huge operating losses for the company's direct-to-consumer (DTC) business.
Thankfully, PubMatic isn't the only company that will benefit from a significant increase in political ad spending this year. Cutting the cord has proven difficult for traditional media companies, but the election cycle should provide a big boost to Warner Bros. Discovery's sales and earnings in 2024.
Perhaps more importantly, the company's DTC division has significant pricing power. Increasing subscriber monthly fees, along with prudent reductions in selling, general and administrative expenses, is the secret to Warner Bros. Discovery ultimately achieving recurring profit in its DTC division. Despite the increase in subscription prices, global streaming subscribers and average revenue per user increased slightly last year, including acquisitions.
The company's ability to generate free cash flow (FCF) cannot be overlooked. Although last year's writer's strike resulted in significant cost reductions, Warner Bros. acknowledged that its reported FCF was up 86% year-over-year. Generating significant cash from operations should help the company deal with its debt burden.
Warner Bros. Discovery's stock price and earnings will likely be worth a penny. But the pieces of the puzzle are in place for investors to generate strong returns over the long term.
AstraZeneca
The fourth exceptional growth stock you'll regret not buying in the new Nasdaq bull market is none other than a pharmaceutical giant AstraZeneca (NASDAQ:AZN).
A major headwind that drug developers must contend with is the limited period of exclusivity for their new treatments. Generic drug makers always seem to be waiting to pounce when patent exclusivity on top-selling drugs expires. AstraZeneca has struggled with the patent cliff for the past decade, but the company's vast portfolio of new drugs is now firing on all cylinders.
Specifically, AstraZeneca's three business segments are performing like a well-oiled machine: Oncology, Cardiovascular, Renal, Metabolism (CVRM) and Rare Diseases. They achieved currency-neutral sales growth rates of 20%, 18%, and 18%, respectively. 12%.
AstraZeneca's cancer medicines division has four blockbuster treatments that benefit from improved cancer screening diagnostics, strong pricing power and opportunities for expanded indications. In particular, sales of the monoclonal antibody Imfinzi surged 55% in constant currencies to $4.24 billion last year.
For CVRM, Farxiga, a next-generation type 2 diabetes drug, did most of the heavy lifting. Sales in 2023 increased by 39% on a currency-neutral basis to $5.96 billion. In the process, Faxiga dethroned AstraZeneca's non-small cell lung cancer drug Tagrisso as AstraZeneca's top-selling drug.
Finally, there are some bright spots in the treatment of rare diseases. When AstraZeneca acquired Alexion Pharmaceuticals in July 2021, it acquired the blockbuster ultra-rare disease drug Soliris and its next-generation replacement, Ultomiris. Now that Alexion has developed an alternative to Soliris, AstraZeneca will have more cash flow without fear of generic competition.
A forward P/E ratio of 13.5x seems quite reasonable for a solid drug maker that is expected to grow earnings at a compound annual rate of 13.2% through 2028.
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Sean Williams has held positions at PubMatic, Visa, and Warner Bros. Discovery. The Motley Fool has positions in and recommends PubMatic, Visa, and Warner Bros. Discovery. The Motley Fool recommends AstraZeneca. The Motley Fool has a disclosure policy.
4 Exceptional Growth Stocks You'll Regret Not Buying in the New Nasdaq Bull Market was originally published by The Motley Fool
