Finance
4 Dominant Growth Stocks You’ll Regret Not Buying in the New Nasdaq Bull Market
It’s been a wild ride for investors since the start of this decade. During each of the first four years, all three major stock indexes have alternated between bear and bull markets, with the growth-fueled Nasdaq Composite (NASDAQINDEX: ^IXIC) withstand the wildest fluctuations.
Despite losing 33% of its value during the 2022 bear market, the innovation-driven Nasdaq Composite has gained 49% since the start of 2023 and has solidly proven that it is in a new, albeit young, bull market.
The great thing about bull markets is that there are always great deals to be discovered. Regardless of whether the Nasdaq Composite is reaching new highs or, in this case, has retreated 5% from its all-time high, opportunistic investors willing to put in the effort can still find 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 begging to be bought in this relatively young Nasdaq bull market is a solid semiconductor stock. Intel (NASDAQ: INTC).
While Intel doesn’t fit the traditional definition of a growth stock—revenue is expected to remain relatively flat year-over-year—earnings per share (EPS) are expected to more than quadruple from the reported $1.05 in 2018. 2023 to estimate of $4.44 in 2027. A projected compound annual earnings growth rate of 43.4% over the next four years certainly qualifies Intel as a growth stock.
Granted, Intel is facing some tangible headwinds. Advanced micro devices has seen its market share in the central processing unit (CPU) decline. Sales of personal computers (PCs) have not recovered as quickly as expected after a surge in sales during the early stages of the pandemic. And Intel’s Foundry Services segment is losing more money than initially expected.
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 stake to AMD, the CPU foundation remains a key cash flow driver, providing Intel with ample capital to reinvest in high-growth initiatives.
Speaking of fast-growing initiatives, Intel recently unveiled its Gaudi 3 graphics processing unit (GPU), which will go head-to-head with Nvidia‘s H100 GPU in data centers with high computing power. As long as AI GPUs remain scarce, there will likely be a strong market for Intel’s Gaudi 3 chip.
Finally, Intel is building its foundry business from the ground up. While not a cheap or quick step up, Intel has a plan to become the world’s No. 2 chip manufacturer by the turn of the century. Patient investors should be richly rewarded.
BioMarin Pharmaceutical
A second dominant growth stock you’ll regret if you didn’t pick it up firmly in a bull market with the Nasdaq Composite is the developer of rare disease drugs BioMarin Pharmaceutical (NASDAQ:BMRN).
If you’re looking for a reason why Wall Street is on BioMarin right now, weak sales of 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 only $0.8 million in revenue in the first quarter.
However, underperformance of one therapy does not detract from the series of successful drugs for ultra-rare diseases that BioMarin has commercialized or may have in its pipeline.
BioMarin’s superstar remains stunting drug Voxzogo, which delivered 74% year-over-year sales growth in the quarter ended March and now generates more than $610 million in annual run-rate revenue. At this rate, it should have no problem eventually becoming a blockbuster therapy that could generate annual sales of $1 billion or more.
In terms of its pipeline, BioMarin has narrowed 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 the research focus to three candidates will save BioMarin up to $40 million in annual operating costs and allow the company to focus on key candidates in the pipeline.
Another reason to trust BioMarin is its focus on rare indications. While there are risks associated with targeting small groups of patients, success often leads to exceptional pricing power and little or no competition. For investors, this means predictable operating cash flow year after year.
BioMarin’s earnings per share are expected to grow more than fivefold to $4.51 by 2027, representing a compound annual earnings growth rate of almost 51%!
SentinelOne
The third prolific growth stock you’ll regret not adding, with the Nasdaq Composite pointing higher, is an emerging endpoint cybersecurity company SentinelOne (NYSE:S).
The biggest blow to SentinelOne is that it didn’t blow away Wall Street’s consensus forecasts for its first fiscal quarter (which ended at the end of April). In March, the company offered guidance of $812 million to $818 million in first-quarter 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 great thing about cybersecurity is that it is no longer an optional service. Companies with an online or cloud-based presence are increasingly turning to third-party vendors like SentinelOne to protect their data and that of their customers. For subscription-driven platforms, this 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 that bring the company annual recurring revenue (ARR) of $100,000 or more and adjusted gross margin. On the former, the company ended fiscal 2024 (ending January 31, 2024) with 1,133 customers generating at least $100,000 in ARR, which is 30% more than the previous year. This shows that SentinelOne has no problems landing larger fish.
Just as important, the company’s adjusted gross margin rose three percentage points to 78% in the fourth fiscal quarter. Juicy margins like these, coupled with continued revenue growth of around 30%, should push SentinelOne into the recurring profit column in the coming year.
After reporting a loss of $0.28 per share in fiscal 2024, Wall Street expects SentinelOne to surpass $1 in earnings per share in fiscal 2028.
PayPal shares
A fourth dominant growth stock you’ll regret not buying in the new Nasdaq bull market is none other than the fintech leader PayPal shares (NASDAQ:PYPL).
The obvious concern for PayPal is that competition in digital payments is increasing and putting pressure on the company’s gross margin. Investors appear reluctant to offer a large premium for PayPal as long as gross margin is under pressure. However, keeping your distance from this top dog in fintech would be a mistake.
There is plenty of room for multiple winners in the field of digital payments. Global fintech revenues could grow sixfold to $1.5 trillion between 2022 and 2030, according to a report released last year by the Boston Consulting Group (BCG). Even if BCG’s estimate is only slightly close, this represents a large enough pie than the PayPal network (primary PayPal and Venmo) can co-exist with a few other major players.
Despite these challenges, the vast majority of PayPal’s KPIs are moving in the right direction. Specifically, total payment volume (TPV) through its network grew 12% to $1.53 trillion in 2023. Even in the toughest of times, PayPal has had no trouble maintaining double-digit TPV growth. If the US economy is firing on all cylinders, a TPV expansion of 20% per year is not out of the question.
Perhaps even more important is the undeniable fact that PayPal’s active user engagement is steadily increasing. From the end of 2020 to the end of 2023, the average number of transactions over the last twelve months completed by active accounts grew from just under 41 to almost 59. As long as active account usage continues to increase, PayPal’s gross profit should be higher.
Newly appointed CEO Alex Chriss also has a keen eye for cost savings and margin expansion. Expect PayPal to continue tightening its belt and buying back shares to give a tangible boost to earnings per share.
Long-term opportunistic investors can pick up shares of PayPal for twelve times forward earnings. That’s a bargain for a company whose earnings per share are expected to grow nearly 12% annually over the next five years.
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Sean Williams has positions in Intel and PayPal. The Motley Fool holds positions in and recommends Advanced Micro Devices, Nvidia, and PayPal. The Motley Fool recommends BioMarin Pharmaceutical and Intel and recommends the following options: long January 2025 $45 calls on Intel, short June 2024 $67.50 calls on PayPal, and short May 2024 $47 calls on Intel. The Motley Fool has one disclosure policy.
4 Dominant Growth Stocks You’ll Regret Not Buying in the New Nasdaq Bull Market was originally published by The Motley Fool
