Dealing with ups and downs is part of being an investor on Wall Street. Since this decade began, all three major stock indexes have traded off bear and bull markets in successive years.
This volatility has been especially noteworthy for the growth-driven Nasdaq Composite (NASDAQINDEX: ^IXIC), which shed 33% of its value during the 2022 bear market, but has catapulted higher by 53% since the start of 2023. With the Nasdaq recently taking out its November 2021 record-closing high, there’s absolutely no question that it’s firmly established itself as being in a fresh bull market.
But here’s the interesting thing about bull markets: Value can always be found. Even though stock market corrections are a natural part of the investing cycle, every downturn in the major stock indexes (including the Nasdaq Composite) has eventually been cleared away by a bull market rally. This means now is as good a time as any for opportunistic long-term investors to seek out high-quality growth stocks.
What follows are four glorious growth stocks you’ll regret not buying in the new Nasdaq bull market.
PayPal Holdings
The first outstanding growth stock you’ll be glad you added to your portfolio in the early stages of the new Nasdaq bull market is fintech leader PayPal Holdings (NASDAQ: PYPL). Despite increasing competition in the digital payment space, PayPal’s key performance indicators and management team suggest the company is positioned for long-term success.
To start with, total payment volume (TPV) traversing its networks (primarily PayPal and Venmo) grew by a double-digit percentage last year. If PayPal can grow its TPV by 12%, excluding currency movements, when most businesses were expecting a modest recession, imagine what it’ll do over the long run when the U.S. economy spends a disproportionate amount of time growing and digital payment adoption expands.
What’s been even more impressive is PayPal’s ability to increase engagement among its active users. Over the past three years (ended Dec. 31, 2023), the average number of payments completed over the trailing-12-month period by active accounts increased from less than 41 to nearly 59. If this trend continues, PayPal’s gross profit should head meaningfully higher.
To add to the above, financial technology (“fintech”) solutions are still in their relative infancy. If estimates from Boston Consulting Group are in the ballpark, global fintech revenue can sextuple to $1.5 trillion by the turn of the decade. This leaves plenty of room for multiple winners in the fintech space, with PayPal currently leading the charge.
Lastly, newly appointed CEO Alex Chriss knows a thing or two about small businesses. He previously led Intuit‘s small business division and has a keen eye for trimming costs and boosting margins without sacrificing high-growth initiatives.
PayPal is historically cheap at 11.5 times forward-year earnings.
Starbucks
A second glorious growth stock you’ll be kicking yourself for not scooping up with the Nasdaq firmly in a new bull market is coffee juggernaut Starbucks (NASDAQ: SBUX). Although rapidly rising coffee and labor costs clearly have some folks concerned, Starbucks’ exceptionally strong brand and ongoing innovations should make patient investors notably richer.
The fuel that keeps Starbucks’ proverbial engine ticking is the loyalty of its customer base. The company has been able to offset inflationary pressures by increasing prices, but hasn’t scared its customers away.
What’s arguably even more important is the company’s rewards program. As of the end of 2023, Starbucks had 34.3 million active rewards members in the United States. In exchange for a free food or drink item every now and then, these rewards members tend to spend more per ticket than the average customer and are more likely to use mobile ordering. The latter helps expedite the ordering process to reduce wait times in stores and via drive-thru. In other words, rewards members are boosting Starbucks’ operating efficiency.
Innovation is the other core reason Starbucks can outperform for investors. In addition to developing new drinks and food items, the company completely revamped its drive-thru ordering boards during the pandemic. Incorporating video of its baristas on drive-thru ordering boards personalized the experience. Meanwhile, promoting food and drink pairings is an easy way for the company to increase margins.
Investors are also getting an opportunity to buy into Starbucks at a historically inexpensive valuation. Shares can be gobbled up right now for less than 19 times forward-year earnings, which represents a 34% discount to its average forward-year earnings multiple over the last five years.
Intel
The third amazing growth stock you’ll regret not picking up with the Nasdaq Composite pushing to a new high is semiconductor stalwart Intel (NASDAQ: INTC). Even though Intel pointed to steep losses from its foundry operations this past week, the puzzle pieces are in place for the company to be wildly successful in the second half of this decade.
The first bit of excitement stems from the role Intel should play in the artificial intelligence (AI) revolution. Although most investors are focused on Nvidia and the dominance of its graphics processing units (GPUs) in high-compute data centers, Intel is debuting AI-focused GPUs of its own. In particular, the company unveiled its Gaudi3 AI GPU in December, with the goal of delivering this generative AI-powering chip to customers this year. With GPU scarcity lifting sales for AI stocks, Intel’s entrance into AI-accelerated data centers can be a meaningful growth driver.
Another reason investors can trust Intel stock over the long run is its foundational central processing unit (CPU) segment. While Advanced Micro Devices has chipped away at some of Intel’s CPU share, and CPUs for personal computers (PCs), mobile devices, and data centers aren’t the high-growth story they once were, these segments remain meaningful cash-flow drivers for Intel.
Further, Intel maintains a dominant share of CPUs in PCs and traditional data centers. This cash cow of an operating segment isn’t going away, and is providing Intel with plenty of cash to reinvest in higher-growth initiatives.
Don’t overlook Intel’s foundry services segment, either. Building a chip fabrication business from (essentially) scratch takes time and money. By the end of the decade, Intel has the potential to be the world’s No. 2 foundry.
Although Intel’s sales growth isn’t indicative of a traditional growth stock, the company’s earnings per share (EPS) is expected to more than quadruple between 2023 and 2027 to $4.44. That makes it an incredible value for patient investors.
Okta
A fourth glorious growth stock that you’ll regret not buying in the new Nasdaq bull market is cybersecurity company Okta (NASDAQ: OKTA). While a security breach last year temporarily clobbered its stock, Okta’s competitive advantages should help power sustained double-digit growth for the foreseeable future.
Before digging into the specifics, it’s important to recognize that cybersecurity is no longer an “optional” service. Hackers and robots don’t take any time off from trying to steal sensitive data. With businesses accelerating their shift of data online and into the cloud, the onus of protecting this information from nefarious parties has increasingly fallen to third-party providers like Okta. This is why temporary weakness from breaches hasn’t been a long-term issue for the company.
Okta’s identity verification platform is cloud-native and reliant on AI and machine learning. In other words, it’s relying on the countless events it oversees each week to become smarter and more efficient at identifying and responding to potential threats over time. While the platform continues to be improved, it should be nimbler and more effective than on-premises solutions.
Okta’s addition of Auth0, which it acquired two years ago, is another key part of its expansion plans. Auth0 specializes in customer identity, which is an estimated $30 billion addressable market. Equally important, Auth0 opens the door to international expansion, which will be needed if Okta’s to maintain its double-digit growth rate.
Investors concerned about a potential recession can take comfort in the fact that Okta closed out fiscal 2024 (ended Jan. 31, 2024) with roughly $1.95 billion in current remaining performance obligations (cRPO) — i.e., its backlog. Even after the noted late-year data breach, Okta’s cRPO grew by 16% from the prior-year period.
With Okta’s adjusted EPS projected to more than triple to $5.20 over the next four years, it looks like a phenomenal buy.
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Sean Williams has positions in Intel and PayPal. The Motley Fool has positions in and recommends Advanced Micro Devices, Intuit, Nvidia, Okta, PayPal, and Starbucks. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, short March 2024 $67.50 calls on PayPal, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
4 Glorious Growth Stocks You’ll Regret Not Buying in the New Nasdaq Bull Market was originally published by The Motley Fool
