Since the Great Recession's bottom was hit 13 years ago, the technology-dependent Nasdaq Composite (NASDAQINDEX: ^IXIC) has been virtually unstoppable. Whereas the iconic Dow Jones Industrial Average and broad-based S&P 500 have delivered respective gains of 398% and 517% since bottoming out on March 9, 2009, the Nasdaq Composite has run away with an aggregate increase of 909%!
But over the trailing four months, enthusiasm surrounding the high-growth stocks that have powered the Nasdaq higher for more than a decade has faded. As of March 8, the Nasdaq Composite was officially in a bear market, with a loss of 20.3% from its all-time closing high.
While these wild swings can be unnerving, especially for newer investors, history has conclusively shown that buying during these dips is a smart move for long-term investors. That's because every notable decline in the stock market is eventually erased by a bull market rally.
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Below are three growth stocks you'll likely regret not buying as the Nasdaq dips into bear market territory.
Upstart Holdings
The first growth stock you'll potentially be kicking yourself for not buying during the Nasdaq bear market is cloud-based lending platform Upstart Holdings (NASDAQ: UPST).
Admittedly, Upstart has had a wild ride since the beginning of August. Shares nearly quadrupled to $400 in less than three months and have retraced as much as 80% since hitting an all-time high. While the upside move was, arguably, a bit much, this retracement overlooks how transformative the company's lending platform could be for lending institutions and consumers.
The traditional vetting process for loan applications is costly and time-consuming. But with Upstart, approximately two-thirds of all personal loan applicants receive an answer immediately. By relying on artificial intelligence (AI) and machine learning, Upstart is able to quickly vet applicants and save lending institutions time and money. Additionally, the company's AI-based platform is leading to a wider gamut of applicants getting approved -- even those with low credit scores.
The recent weakness in Upstart likely has to do with the expectation of higher interest rates. With inflation hitting a 40-year high in January, the Federal Reserve has little choice but to hike interest rates to quell inflation. The concern is that higher rates could reduce the number of loan applicants and slow Upstart's rapid growth.
However, it's important to note that 94% of the company's fourth-quarter revenue was service- or fee-based. The company has no credit exposure, and therefore doesn't have to worry about loan losses or delinquencies. What's more, with the company's platform saving lending institutions money, they're even more liable to rely on Upstart as interest rates rise and the loan applicant pool thins out a bit.
Keep in mind that personal loans are just a jumping-off point for Upstart. The acquisition of Prodigy Software in 2021 gives the company a path to tackle the auto loan origination market with its AI lending platform. Mortgage loan originations are likely to be the next target after that.
With Upstart forecast to grow its sales by 273% over the next five years, now is the perfect time to take advantage of this recent discount.
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Lovesac
Another growth stock you'll regret not buying with the Nasdaq hitting bear market territory is specialty furniture retailer Lovesac (NASDAQ: LOVE).
Generally speaking, furniture companies are highly cyclical, slow-growing, and very much dependent on foot traffic to their brick-and-mortar stores. Lovesac is attempting to turn this stodgy industry on its head in two unique ways.
First, Lovesac is changing the game with its furniture. Although the company was initially known for its beanbag-styled chairs, "sactionals" now make up around 85% of total sales. Sactionals are modular couches that can be rearranged dozens of ways to fit most living spaces. In addition to their functionality, there are approximately 200 cover choices that buyers can choose from. This means sactionals will match any theme or color scheme of a home. And perhaps best of all, the yarn used to make these covers is entirely derived from recycled plastic water bottles. That's function, choice, and eco-friendly production rolled up into one product.
The second source of differentiation for Lovesac is the company's omnichannel sales platform. Whereas most furniture stores were severely hampered by COVID-19 lockdowns, Lovesac was able to shift nearly half of its annual sales online. The company also utilized pop-up showrooms and leaned on showroom partnerships with brand-name retailers to keep its physical rent costs down. The point is that Lovesac's overhead costs are substantially lower than those of other furniture stores, which has led to superior margins and recurring profits.
Despite obliterating Wall Street's expectations for the past two years, Lovesac's shares have retraced almost 60% from their all-time high. With the company expected to sustain double-digit sales growth for years to come, and shares valued at only 19 times Wall Street's consensus earnings for next year, now is the time for opportunistic investors to pounce.
Image source: Getty Images.
Qorvo
The third growth stock you're going to regret not scooping up with the Nasdaq hitting bear market territory is radio-frequency systems supplier Qorvo (NASDAQ: QRVO).
The big theme expected to drive Qorvo's top and bottom line substantially higher is the ongoing rollout of 5G wireless infrastructure. It's been approximately a decade since wireless download speeds were notably improved. The introduction of 5G download speeds should coax consumers and businesses to undertake a multiyear device replacement cycle.
Qorvo supplies a number of key components used in next-generation smartphones with 5G capability. This includes Apple's iPhone, which accounted for in the neighborhood of 30% of Qorvo's sales in 2021. In fact, Apple's recently introduced iPhone SE with 5G capability is yet another opportunity for Qorvo's chips to find a home.
In simple terms, the more 5G-capable smartphones that are produced, the more likely it is that Qorvo's solutions will find their way into those devices. According to IDC, U.S. smartphone shipments are expected to grow from 89.5 million units in 2021 to more than 153 million by mid-decade.
Although smartphone solutions make up the bulk of Qorvo's revenue, it's not the company's only source of growth. For example, it supplies wireless connectivity solutions used in next-generation vehicles. As newer vehicles become more reliant on technology and driver-assist features, companies like Qorvo will be leaned on to a greater degree.
Qorvo represents one of those rare instances where a growth stock can be a value stock, too. Despite low double-digit sales growth, investors can buy shares of the company for less than 10 times Wall Street's forecast earnings for fiscal 2023. That's incredibly inexpensive for a company that's intricately tied to the growth of next-gen smartphones.
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Sean Williams owns The Lovesac Company. The Motley Fool owns and recommends Apple, Qorvo, and Upstart Holdings, Inc. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. 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.
