Nasdaq Bear Market: 2 Unstoppable Growth Stocks To Buy On The Downside


Wall Street worries about the economy. Supply chain issues and geopolitical strife have pushed inflation to a 40-year high, but if the Federal Reserve tightens monetary policy too aggressively — by raising interest rates or cutting too much its balance sheet quickly – it could tip the economy into a recession. Many investors sold stocks to hedge against this eventuality, and the Nasdaq Compound fell 25% from its peak, putting the index in bearish territory.

This logic makes sense on the surface. Company revenues and profits would be affected during an economic contraction, and these measures are typically used to value stocks. That being said, the market often overreacts to both good and bad news, and many downed growth stocks currently look like bargains. For example, the actions of Amazon (AMZN -1.40%) and PayPal Credits (PYPL -4.39%) are down 33% and 70%, respectively, but the future looks bright for both companies.

Here’s why.

Image source: Getty Images.

1. Amazon

Wall Street was disappointed with Amazon’s first-quarter results, but investors who sold the stock are missing the big picture. Amazon is a powerhouse in two critical sectors. Its market averaged 5.2 billion monthly visitors in 2021, three times as many as its closest competitor. And Amazon alone generated 41% of US e-commerce sales last year, more than the next 14 retailers combined.

Even better, the company also dominates the cloud computing industry. Last year, Amazon Web Services (AWS) again ranked as the best cloud provider, according to research by Gartner. And in the first quarter of 2022, AWS captured 33% market share. It’s more than Microsoft and Alphabet combined.

So why was Wall Street disappointed? High inflation and rising costs weighed on bottom line, and Amazon posted its first quarterly loss in several years. But these headwinds are temporary, and Amazon has always grown at an impressive rate over a longer time horizon.

Metric

Q1 2019

Q1 2022

CAGR

Turnover (TTM)

$241.5 billion

$477.8 billion

26%

Net income (TTM)

$12.0 billion

$21.4 billion

21%

Data source: YCharts. TTM = last 12 months. CAGR = compound annual growth rate.

With an already massive market cap of $1.3 trillion, some investors may be worried about Amazon’s future growth prospects. But eMarketer forecasts suggest online retail sales will grow 50% by 2025, and Gartner says spending on cloud services will more than double over the same period. This last figure is particularly remarkable because cloud computing is much more profitable than retail. In fact, AWS typically achieves an operating margin north of 30%, but Amazon’s retail business operating margin rarely exceeds 5%.

To that end, Amazon has plenty of room for growth in its two core businesses, and its profitability should accelerate as AWS becomes a bigger piece of the puzzle. And with shares trading at 2.7 times sales, Amazon is cheaper today than at any time in the past five years. That’s why this growth stock is a screaming buy.

2.Paypal

The PayPal brand is synonymous with digital payments. Over 75% of the top 1,500 companies offer PayPal at checkout, making it the most accepted digital wallet by a wide margin. For context, Apple Salary ranks second with only 27% acceptance. What explains this success?

PayPal stood out for the breadth and breadth of its portfolio. The company has 429 million active accounts, including 35 million merchants, and offers a wide range of consumer and business financial products and services. Of particular note, PayPal has recently taken steps to strengthen its physical presence with Venmo credit card and QR code payments. And he launched PayPal Zettle in the US, a point-of-sale solution that helps merchants run a business across physical and digital storefronts.

In Q1 2022, PayPal continued to battle headwinds from the loss of eBay, high inflation and geopolitical conflicts, all of which caused a slowdown in revenue and net income growth. But these headwinds are temporary and the company has still delivered strong results over a longer period.

Metric

Q1 2019

Q1 2022

CAGR

Turnover (TTM)

$15.9 billion

$25.8 billion

18%

Net income (TTM)

$2.2 billion

$3.6 billion

17%

Data source: YCharts. TTM = last 12 months. CAGR = compound annual growth rate.

Despite a difficult macroeconomic environment, the future looks bright for PayPal. The company will suffer the worst impact from eBay this quarter, so eBay’s loss of business will no longer be a headwind in the second half of 2022. And inflation will start to come down as supply chains tighten. normalize and interest rates rise.

More importantly, PayPal is executing a solid growth strategy. The company recently revamped its digital wallet to include tools for shopping rewards, deal discovery, and crypto trading. Additionally, the Venmo digital wallet is now a payment option via DoorDash, Turnand Reserve credits, and it’s coming to Amazon later this year. These upgrades are particularly timely, as consumer use of the digital wallet is expected to double between 2021 and 2025, according to Juniper Research.

More broadly, PayPal values ​​its addressable market at $110 trillion, and unstoppable trends such as online shopping and digital payments should be tailwinds for the company. And with stocks trading at 4.2x sales, PayPal is cheaper today than it has been since its IPO in 2015. That’s why this growth stock is a smart buy. .

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