It’s truly incredible what a difference a year can make on Wall Street. In 2022, the growth-fueled Nasdaq Composite (^IXIC 0.02%) shed 33% of its value during a bear market. But in 2023, growth stocks came back with a vengeance and lifted the Nasdaq Composite to a gain of 43%.
Despite this monumental rally for the Nasdaq, it remains approximately 7% below its record high, which was set more than two years ago. While short-term traders are liable to view a nearly 7% drop over a 26-month stretch as a disappointment, long-term-minded investors are wisely seeing this decline as an opportunity to establish or add to positions in high-quality growth stocks at a perceived discount.
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What follows are four remarkable growth stocks you’ll regret not buying in the wake of the Nasdaq bear market dip.
Nio
The first extraordinary growth stock that you’ll be kicking yourself for not purchasing while the Nasdaq Composite is still notably below its all-time high is China-based electric vehicle (EV) manufacturer Nio (NIO -3.11%). Although EV demand has weakened a bit in the U.S., Nio appears perfectly positioned to ramp its production and gobble up valuable share in the world’s leading market for autos — namely, China.
The biggest challenge Nio has dealt with is China’s stringent approach to mitigating the spread of COVID-19. Until December 2022, the country’s “zero-COVID” strategy led to unpredictable lockdowns that caused serious supply chain problems. With Chinese regulators abandoning this controversial policy a little over a year ago, Nio has been free to focus on innovation and worry a bit less about supply chain constraints. The result was a nearly 31% increase in EV production last year to north of 160,000 units.
Beyond just macro factors, Nio is benefiting from its introduction of the NT 2.0 platform. NT 2.0 provides improved advanced driver assistance systems (ADAS), which have fueled demand for its second-generation SUVs. Trucks and SUVs almost always generate juicier automotive gross margin than sedans. The rebound in deliveries Nio has seen for its SUVs is the result of upgrading its ADAS technology via NT 2.0.
Thinking outside of the box hasn’t hurt Nio’s long-term growth prospects, either. Beginning in August 2020, Nio began offering a battery-as-a-service subscription (BaaS). BaaS provides a way for Nio to collect high-margin sustainable revenue, and — most importantly — keep early buyers loyal to the brand.
Even though Nio is a couple of years away from reaching recurring profits, it ended September with $6.2 billion in cash, cash equivalents, and various short- and long-term investments. The company also secured a $2.2 billion equity investment from CYVN Investments just prior to the end of 2023. It has more than enough capital to ramp production and continue innovating.
NextEra Energy
A second remarkable growth stock you’ll regret not adding to your portfolio in the wake of the Nasdaq’s bear market plunge in 2022 is electric utility company NextEra Energy (NEE 0.53%). Though utilities are usually slow-growing, dividend-focused businesses, NextEra has delivered a compound adjusted earnings growth rate of just shy of 10% since 2012. This very much makes it a growth stock in a mature sector.
NextEra’s biggest headwind has been rapidly rising Treasury yields. Income investors buy utilities for their yields and low volatility. But with short-term Treasury yields surpassing 5% in 2023, companies like NextEra Energy became chopped liver. With three interest rate cuts forecast by the nation’s central bank in 2024, utilities appear poised for a rebound year.
The catalyst that’s fueled NextEra’s outsize growth rate for more than a decade is its renewable energy portfolio. Nearly half — or 34 gigawatts (GW) — of the company’s 70 GW of capacity can be traced to renewables. Moreover, the 23 GW of wind capacity and 6 GW of solar capacity are both high-water marks for any electric utility in the world. Though investing in clean-energy projects has been expensive, the reward is substantially lower electricity-generation costs.
In spite of higher interest rates, NextEra Energy’s management team has no intention of taking its foot off the accelerator. From the start of 2023 through 2026, the company anticipates bringing between 32.7 GW and 41.8 GW of renewable projects on line. This is the fuel that should sustain a superior growth rate in an industry typically known for low-single-digit adjusted earnings growth.
Something else for investors to remember about electric utilities is that they provide a basic need service. If you own or rent a home, chances are very good that you need electricity to power your appliances and/or heating/cooling system. This means demand for electricity isn’t going to change much from one year to the next, which leads to predictable operating cash flow for NextEra.
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Jazz Pharmaceuticals
The third sensational growth stock you’ll regret not scooping up in the wake of the Nasdaq bear market decline is specialty drug developer Jazz Pharmaceuticals (JAZZ -1.21%). Although sales exclusivity concerns have weighed on Jazz’s stock in recent years, the company’s product portfolio and pipeline appear poised to thrive.
Before digging into the specifics of its portfolio, it’s important to recognize that one of Jazz Pharmaceuticals’ biggest competitive advantages is its focus on rare diseases. While targeting indications for a small group of patients can be risky, there’s plenty of reward for success, too. Approved orphan drugs face little in the way of pushback on list prices from insurers, and there’s rarely much in the way of competition.
Jazz’s bread and butter continues to be its oxybate franchise (Xyrem and Xywav), which is focused on patients with sleep disorders like narcolepsy. The smart move Jazz made was to develop Xywav, a next-generation version of Xyrem that contains 92% less sodium. Not only does this make the company’s top-selling therapy safer for patients with higher cardiovascular risk factors, but it’ll help secure most of the company’s cash flow for years to come as Xyrem users are moved over to Xywav.
Another reason growth stock investors can confidently buy shares of Jazz Pharmaceuticals is its rapidly growing oncology segment, which is led by acute lymphoblastic leukemia drug Rylaze. Cancer drug sales appear to be on target to reach $1 billion in 2023 (Jazz hasn’t reported its 2023 full-year operating results as of yet), with a couple of key late-stage readouts expected this year.
Finally, Jazz Pharmaceuticals is especially cheap for a growth stock. Despite shoring up the cash flow for its oxybate franchise and delivering double-digit oncology sales growth, shares of Jazz can be purchased for just 6 times forward-year earnings. You’ll have a hard time finding a cheaper publicly traded drug developer.
Sea Limited
The fourth remarkable growth stock you’ll regret not buying in the wake of the Nasdaq bear market dip is Singapore-based Sea Limited (SE -3.29%). While Sea’s latest quarterly report left a lot to be desired, the company’s three fast-paced operating segments offer plenty for long-term investors to be excited about.
The division that’s been generating positive earnings before interest, taxes, depreciation, and amortization (EBITDA) the longest for Sea is its digital entertainment division (commonly known as “Garena”). Even though the percentage of paying mobile users has declined following the worst of the pandemic, Garena recorded 40.5 million paying users in the third quarter, totaling 7.5% of its active user base. A 7.5% pay-to-play ratio is many multiples higher than the industry average for mobile gaming.
There’s also plenty of excitement surrounding SeaMoney, the company’s digital financial services segment. Since Sea focuses its efforts on underbanked emerging markets in Southeast Asia, offering loans and other digital financial solutions could be a serious cash-flow driver by the latter half of the decade.
But the segment that’s (rightly) generating most of the buzz for Sea is its e-commerce division, known as Shopee. A burgeoning middle class in Southeast Asia should allow Shopee to sustain a double-digit growth rate for a long time to come. In the entirety of 2018, Shopee recorded $10 billion in gross merchandise value (GMV) on its platform. As of Sept. 30, 2023, it had a GMV annual run rate of just over $80 billion.
The final piece of the puzzle is that Sea is sitting on roughly $7.9 billion in cash, cash equivalents, short-term investments, and restricted cash. This equates to more than a third of Sea Limited’s market cap at the moment and provides a healthy floor for the company’s shares.