You probably don’t need me to tell you this, but it’s been a miserable year for the stock market. Since each of the three major U.S. stock indexes hit their all-time highs between mid-November 2021 and the first week of January 2022, the Dow Jones Industrial Average dropped by 22% and the S&P500 is down 28%. dependent technology Nasdaq Compound took the brunt of the pain, down 38%.
Although we will never know when a bear market will begin, how long it will last, or how steep the decline will be, we know that every bear market, crash, and correction in history (except the current bear market) has eventually been erased by a bull market. In other words, buying before the next bull market is a stroke of genius.
Knowing that it is impossible to plan for market lows consistently over the long term, I actively added existing positions and bought new stocks throughout the downturn in the bear market. In particular, there are four growth stocks I bought aggressively before the next bull market.
The first growth stock in which I have accumulated long before the emergence of the next bull market is fintech giant PayPal Credits (PYPL -0.88%). Despite higher inflation suppressing discretionary spending by low-income workers, PayPal’s digital payments platform has shown incredible resilience.
What really stands out is that the total payment volume (TPV) across all of PayPal’s digital payment channels continued to grow by a low double-digit percentage, after excluding currency movements. If TPV can maintain a growth rate of 10% or more with declining US gross domestic product in each of the first two quarters of 2022, imagine how quickly it will increase when the Federal Reserve’s monetary policy turns accommodative again.
Additionally, the company’s modestly growing active account base is increasingly engaged. At the end of 2020, the average active PayPal account made 40.1 transactions in the last 12 months (TTM). At the end of September 2022, it was up to 50.1 transactions on the TTM. PayPal’s operating model is heavily influenced by fees, which bodes well for a future increase in gross profit.
paypal too did not hesitate to pull levers, when it’s necessary. It acquired Japanese service Buy Now, Pay Later Paidy in 2021. In 2023, it aims to cut operating expenses by $1.3 billion. This is an agile, fast-growing stock that has simply never been cheaper.
A completely off-the-radar growth stock that I bought regularly during the 2022 bear market is provider of dog-focused pet products and services Bark (BARK -2.52%). Although Bark’s lack of profitability has made some people skeptical, I see a number of reasons why this small-cap company can achieve mid-cap status within a few years.
For starters, the macro picture of pet expenses tells an important story. At no time in more than a quarter century has US spending on pets declined year over year. Simply put, American pet owners gladly open their wallets every year to ensure the health and happiness of their furry, scaled, gilled, and feathered “family members.” This is good news for all pet stocks, including Bark.
What makes Bark so special is his direct consumer orientation. Although revenue tends to be a bit seasonal, based on physical ordering habits, around 90% of the company’s sales come from the 2.24 million people who have an active subscription with the company. The rest comes from physical outlets. A subscription-based model means highly predictable cash flow and reduced overhead.
What Bark has done on the innovation front is even more exciting. During the pandemic, the company introduced three new services: Bark Bright (covering canine dental products), Bark Home (essential items, such as collars and beds) and Bark Eats (dry food for certain dog breeds). Add-on sales have increased for Bark and should help the company maintain a gross margin of nearly 60%.
A third historically fast stock that I bought aggressively long before the next bull market is social media stock Metaplatforms (META 0.49%). Despite the likelihood of a slowdown in ad spending in the near term and CEO Mark Zuckerberg’s reluctance to slow spending on metaverse initiatives, I’m excited about the company’s future.
The first thing to note about advertising during a bear market is that investors still end up too pessimistic. Although recessions are an inevitable part of the investment cycle, periods of economic expansion last much longer. Buying ad-based businesses with pricing power in a downturn is a wise move.
There are few, if any, advertising-focused companies on the planet with better advertising pricing power than Meta. This is because its main social media assets – Facebook, WhatsApp, Instagram and Facebook Messenger – attracted 3.71 billion monthly unique visitors in the third quarter. There is no other social media provider advertisers can turn to to give them access to the eyeballs of an estimated 3.7 billion people.
The other important consideration with Meta is its balance sheet and operating cash flow. Even with Zuckerberg pumping billions into Reality Labs and metaverse innovation, the company is sitting on $31.9 billion in net cash, cash equivalents and marketable securities. With its still incredibly profitable advertising business, Meta has more than enough cushion to be aggressive with a potential multi-trillion dollar opportunity.
The fourth growth stock that I generously added before the next bull market took shape is e-commerce center pivot Amazon (AMZN -1.40%). While many skeptics focus on the company’s struggling e-commerce market and its diminishing bottom line, I think they overlook the operating segments that matter most.
Yes, Amazon is an online retail beast. This year, it will account for almost 40% of all online retail sales in the United States, according to an eMarketer report published in March 2022. However, it is a very low-margin segment. Even if retail sales were to struggle for years, Amazon could see its operating cash flow soar if its faster-growing sales and higher-margin ancillary operating segments continue to thrive.
For example, the company pivoted the popularity of its online marketplace to well over 200 million Prime subscriptions. Keep in mind this figure is from the company in April 2021, so it’s likely considerably higher now, especially with Amazon owning the rights to Thursday night football. Subscription services now account for nearly $36 billion in annual sales.
The Amazon Web Services (AWS) cloud infrastructure services segment is another key piece of the puzzle for the company. During the third quarter, AWS accounted for 32% of global cloud spending, according to a Canalys report. AWS also topped $20 billion in quarterly sales for the first time in the third quarter, with that segment consistently generating more than half of Amazon’s operating profit.
As long as Amazon’s high-margin operating segments are firing on all cylinders, short-term weakness in the online market can be largely ignored.