June 19, 2024

The Art of Investment

Mastering the Stock Market Strategies

4 Dominant Growth Stocks You’ll Regret Not Buying in the New Nasdaq Bull Market

6 min read

Opportunistic investors can still find bargains, even with the Nasdaq Composite up 49% since the start of 2023.

It’s been a wild ride for investors since this decade began. Through each of the first four years, all three major stock indexes have traded off bear and bull markets, with the growth-fueled Nasdaq Composite (^IXIC 1.99%) enduring the wildest swings.

Despite losing 33% of its value during the 2022 bear market, the innovation-powered Nasdaq Composite has gained 49% since the beginning of 2023 and firmly established that it’s in a new, albeit young, bull market.

A bull figurine set atop a financial newspaper, and in front of a volatile but rising popup stock chart.

Image source: Getty Images.

The great thing about bull markets is that amazing deals can always be uncovered. Regardless of whether the Nasdaq Composite is reaching new heights or has, in this instance, pulled back 5% from its record-closing high, opportunistic investors willing to put in the work can still locate growth stocks at a discount.

Here are four dominant growth stocks you’ll regret not buying in the new Nasdaq bull market.

Intel

The first sensational growth stock that’s begging to be bought in this relatively young Nasdaq bull market is semiconductor stalwart Intel (INTC 1.28%).

Though Intel doesn’t fit the traditional definition of a growth stock — sales are forecast to be relatively flat on a year-over-year basis — its earnings per share (EPS) is expected to more than quadruple from a reported $1.05 in 2023 to an estimated $4.44 by 2027. A forecast 43.4% compound annual earnings growth rate over the next four years certainly qualifies Intel as a growth stock.

Admittedly, Intel is contending with some tangible headwinds. Advanced Micro Devices has been chipping away at its central processing unit (CPU) market share. Personal computer (PC) sales haven’t bounced back as quickly as expected following a surge in sales during the early stages of the pandemic. And Intel’s Foundry Services segment is losing more money than initially forecast.

Despite these concerns, Intel has retained the lion’s share of the CPU market in PCs and data centers. Even after ceding some of its share to AMD, its CPU foundation remains a core cash flow driver and provides Intel with plenty of capital to reinvest in high-growth initiatives.

Speaking of high-growth initiatives, Intel recently unveiled its Gaudi 3 graphics processing unit (GPU), which’ll be going toe-to-toe with Nvidia‘s H100 GPU in high-compute data centers. As long as AI-GPUs remain scarce, there’ll likely be a strong market for Intel’s Gaudi 3 chip.

Lastly, Intel is in the process of building its foundry operations from the ground up. Though this isn’t a cheap or quick ramp, Intel has a game plan to become the world’s No. 2 chip fabrication company by the turn of the decade. Patient investors should be handsomely rewarded.

BioMarin Pharmaceutical

A second dominant growth stock you’ll regret not scooping up with the Nasdaq Composite firmly in a bull market is rare-disease drug developer BioMarin Pharmaceutical (BMRN -1.62%).

If you’re looking for a reason why Wall Street is down on BioMarin at the moment, weak sales for Roctavian, a one-time gene therapy for patients with hemophilia A, is the answer. “Reimbursement and market access challenges,” as described by BioMarin, led to just $0.8 million in first-quarter sales.

However, a subpar performance from one therapy doesn’t spoil the basket of successful ultra-rare disease drugs BioMarin has brought to market or potentially has in its pipeline.

BioMarin’s superstar continues to be dwarfism drug Voxzogo, which delivered 74% year-over-year sales growth in the March-ended quarter and is now pacing more than $610 million in annual run-rate revenue. At this pace, it should have no trouble eventually becoming a blockbuster therapy that can deliver $1 billion or more in annual sales.

In terms of its pipeline, BioMarin has narrowed down its most promising candidates to BMN-333 for multiple growth disorders, BMN-349 for AATD-associated liver disease, and BMN-351 for Duchenne muscular dystrophy. Narrowing its research focus to three candidates will save BioMarin up to $40 million in annual operating expenses and give the company an opportunity to focus on its top pipeline candidates.

Another reason to trust in BioMarin is its focus on rare indications. While there are risks associated with targeting small pools of patients, success often leads to exceptional pricing power and little or no competition. For investors, it means predictable operating cash flow year after year.

BioMarin’s EPS is forecast to more than quintuple to $4.51 by 2027, which represents a compound annual earnings growth rate of almost 51%!

Gloved hands typing on a backlit keyboard in a dimly lit room.

Image source: Getty Images.

SentinelOne

The third prolific growth stock you’ll regret not adding with the Nasdaq Composite pointing higher is up-and-coming endpoint cybersecurity company SentinelOne (S -1.16%).

The biggest knock against SentinelOne is that it didn’t blow the doors off Wall Street’s consensus revenue projections for the fiscal first quarter (ended late April). In March, it offered guidance of $812 million to $818 million in Q1 sales, compared to a consensus estimate of $818 million. Mind you, the midpoint of the company’s forecast implies 31% year-over-year growth.

The beauty of cybersecurity is that it’s not an optional service any longer. Businesses with an online or cloud-based presence are increasingly turning to third-party providers like SentinelOne to protect their data and that of their customers. For subscription-driven platforms, it means predictable and transparent operating cash flow.

While most of SentinelOne’s key performance indicators (KPIs) are moving in the right direction, the two that stand out are the number of businesses bringing the company annual recurring revenue (ARR) of $100,000 or more, and adjusted gross margin. With regard to the former, the company closed out fiscal 2024 (ended Jan. 31, 2024) with 1,133 customers generating at least $100,000 in ARR, which is up 30% from the prior year. This shows that SentinelOne is having no trouble landing bigger fish.

Just as important: The company’s adjusted gross margin increased by three percentage points in the fiscal fourth quarter, to 78%. Juicy margins like these, coupled with sustained sales growth of around 30%, should push SentinelOne into the recurring profit column within the next year.

After losing $0.28 per share in fiscal 2024, Wall Street expects SentinelOne to surpass $1 in EPS by fiscal 2028.

PayPal Holdings

A fourth dominant growth stock you’ll regret not buying in the new Nasdaq bull market is none other than fintech leader PayPal Holdings (PYPL -1.91%).

The clear concern for PayPal is that competition in the digital payment space is heating up and applying pressure to the company’s gross margin. Investors appear reluctant to offer much of a premium for PayPal as long as its gross margin is strained. However, keeping your distance from this top dog in fintech would be a mistake.

There’s plenty of room for multiple winners in the digital payment arena. According to a report released last year by Boston Consulting Group (BCG), global fintech revenue could grow sixfold to $1.5 trillion between 2022 and 2030. Even if BCG’s estimate is only remotely in the ballpark, this represents a big enough pie that PayPal’s network (primary PayPal and Venmo) can coexist with a few other key players.

Despite these challenges, the vast majority of PayPal’s KPIs are moving in the right direction. Specifically, total payment volume (TPV) traversing its network grew by 12% to $1.53 trillion in 2023. Even in the toughest of times, PayPal has had no trouble sustaining double-digit TPV growth. If the U.S. economy is firing on all cylinders, TPV expansion of 20% per year isn’t out of the question.

Perhaps even more important is the undeniable fact that PayPal’s active user engagement is climbing steadily. From the end of 2020 through the end of 2023, the average number of transactions over the trailing 12-month period completed by active accounts grew from just shy of 41 to nearly 59. As long as active accounts continue to increase their usage, PayPal’s gross profit should head higher.

Newly appointed CEO Alex Chriss also has a keen eye for cost-cutting and margin expansion. Look for PayPal to continue to tighten its belt and repurchase its stock to provide a tangible boost to EPS.

Opportunistic long-term investors can scoop up shares of PayPal for 12 times forward earnings. That’s a steal for a company whose EPS is slated to grow by nearly 12% on an annualized basis over the coming five years.

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