The past year was tough for investors. 2022 was marked by historically high inflation, rising interest rates, and the worst market downturn in over a decade. Each of the three major market indexes fell into bear market territory last year, and even the best growth stocks weren’t spared. In fact, some of the best-performing stocks of the past several years were hit hardest, as investors began avoiding companies with high valuations, a lack of profits, or both.
If there’s a silver lining to the otherwise cloudy outlook, it’s this: Every bear market eventually gives way to an even more robust bull market. Investors able to look past the current uncertainty and buy stocks at historically low prices will be winners in the rising market to come.
With that as a backdrop, I’m putting my money where my mouth is. Let’s look at five fabulous growth stocks I added to my own portfolio this month.
There’s no denying Nvidia‘s (NVDA -4.80%) growth stock bona fides. Over the past 10 years, the stock has soared more than 7,200%, driven by revenue that surged more than 500%. The company is the undisputed leader in the discrete desktop graphics processing unit (GPU) market. Furthermore, its data center and cloud computing customer list is a veritable Who’s Who of tech glitterati.
Its credentials didn’t stop Nvidia stock from plummeting as much as 66% off its peak reached in late 2021, but the evidence suggests a robust rebound is in the cards.
As recently as its fiscal 2023 first quarter (ended May 1, 2022), Nvidia was posting record quarterly revenue that grew 46% to $8.29 billion, while its adjusted earnings per share (EPS) of $1.36 grew 49%. In the two quarters since — and in the face of rising economic uncertainty — customers and businesses alike rightly reined in spending.
Its recent record results show that the semiconductor maker was firing on all cylinders, and the broader economy is responsible for its decline. Experienced investors know that this too shall pass. When the bull market starts to run — and it will — so too will Nvidia. In fact, that may have already begun: Nvidia’s stock price has doubled since October.
The ongoing digital transformation and rapid adoption of cloud computing created an optimum environment for Snowflake (SNOW -3.29%), which debuted publicly in late 2020 after years in stealth mode. The company’s cloud-based data storage, data lake, and data analytics services caught the eyes of several high-profile investors, including Berkshire Hathaway and Salesforce.
Snowflake stock doubled on its first day of trading, and had tripled by the following year, before economic upheaval sent the stock price crashing down as much as 70% from its peak. But don’t confuse stock price with performance.
Even as many companies struggled in the face of the downturn, Snowflake has thrived. In its fiscal third quarter 2023 (which ended Oct. 31, 2022), revenue grew 67% year over year, sending adjusted EPS surging 200%. The results were powered by the company’s pricing structure. Snowflake doesn’t charge a subscription fee for those using its software-as-a-service (SaaS) platform, but rather relies on use-based pricing — which wins rave reviews from customers.
Customer metrics were equally robust, growing 34% year over year, while the number of customers spending $1 million annually surged 94%. Existing customers tend to spend more as time goes on, as evidenced by its net revenue retention rate of 165%.
Snowflake stock continues to be volatile, but it’s risen 36% from its trough last year. However, given its history of outperformance, the stock has much further to rise.
3. The Trade Desk
While marketing once evoked images of smoke-filled back rooms and martini lunches, The Trade Desk (TTD -2.39%) isn’t your grandfather’s ad tech company. The disruptive upstart has seen its stock rise 1,590% since its debut in 2016 — even after its recent bear market slump.
CEO Jeff Green revolutionized the industry when he created the first online ad trading platform in 2004. He brought that same sense of disruption to The Trade Desk when it debuted in 2009, and advertising has never been the same. The company’s cutting-edge platform lets ad buyers get the most bang for their buck with real-time bidding for ad inventory.
As the economy slowed, The Trade Desk’s stock tanked, falling as much as 64% from its peak. Yet that decline belies the business strength that continues to shine, even in dark times.
It’s well-documented that marketers rein in ad spending during periods of economic uncertainty, yet The Trade Desk continues to prosper. In Q3, The Trade Desk’s revenue grew 31% year over year, stealing market share from its well-established rivals as marketers look for a better return on their advertising dollars. What’s more, The Trade Desk’s profits continue to roll in.
Investors (myself included) are increasingly optimistic that The Trade Desk will endure and thrive, sending its stock price up more than 26% since early November.
Organizing data into rows and columns was revolutionary when it debuted, but databases have continued evolving. MongoDB (MDB -4.57%) leads the way with an innovative, multi-cloud, database-as-a-service solution. This next-generation system stores data from messy, more modern sources, including social media posts, photos, emails, audio and video clips, and even entire documents. Since its public debut in late 2017, this elegant solution helped drive revenue up 930%, fueling a stock rise of 589%. But that could be just the beginning.
Investors worried that ongoing economic turmoil would hit the company hard. The ensuing exodus sent the stock tumbling as much as 76%. Yet MongoDB continued growing, even as its stock price sank.
In Q3, revenue grew 47%, while its flagship Atlas database grew 61%. At the same time, MongoDB swung to an adjusted profit, catching Wall Street by surprise, as analysts had expected a loss. Robust customer growth helped drive the results. Total customers grew 26% year over year to 39,100, while those spending $100,000 or more annually grew 29%.
The company’s continuing strength in the face of adversity has buoyed confidence, lifting the stock more than 55% from its recent lows. Given its history of strong performance, there’s likely more where that came from.
Tesla (TSLA -5.03%) turned the auto industry on its head by proving there was a market for electric vehicles (EVs) that were stylish and fun to drive. Over the past decade, Tesla’s revenue grew 4,230%, fueling the stock’s 8,000% rise.
Revolutionizing an industry looks great on paper, but that didn’t stop the stock from shedding as much as 73% of its value, driven lower by slowing sales and light production and delivery numbers.
It’s important to put those shortfalls in context. Even as Tesla missed its own goal of generating 50% year-over-year growth, it still managed to deliver a record 405,278 cars in the fourth quarter and 40% year-over-year growth, even in the face of economic headwinds. Still, if Tesla can achieve those results in the midst of a struggling economy, imagine how much more it can do when the economy is less uncertain. Tesla is already off to the races, with the stock up 92% since late last year.
You get what you pay for
I said at the outset that stocks with high valuations suffered over the past several years, and these five companies certainly qualify in that regard. In fact, some investors might continue to balk at the price tags of these stocks. They’re currently selling at 5 to 15 times next year’s sales when most experts agree a reasonable price-to-sales ratio is between 1 and 2.
However, valuation shouldn’t be considered in a vacuum, but viewed in the context of each company’s historical performance and ongoing growth prospects.
Each of these companies boasts an enviable history of above-average growth, which makes these disruptors worth every penny in my book. That’s why I added to my position in every one of these stocks this month and have continued to buy through the downturn.