Bear markets are tough on the portfolio, but they also present opportunities. There is no better time than a bear market to buy good growth stocks at a discount.
Growth stocks have been hit harder than most, as the S&P 500 Growth Index was down 30% last year, while the Russell 2000 Growth Index dropped 27% in calendar year 2022. That means that some very good growth stocks lost nearly a third of their value or more.
Here are three growth stocks that are relatively cheap and should storm back.
Visa (V -0.94%), the credit card and payment processor, was actually one growth stock that didn’t lose a lot of its value last year, down only 4% in 2022. That speaks to the durability of this company, as it typically outperforms in down markets.
Over the long run, it has beaten the markets, returning 20.6% annually over the last 15 years, dating back to Feb. 8, 2008. That 15-year snapshot is important because it includes a significant part of the Great Recession and the stock market crash, as the chart shows.
There is a lot written about why Visa is such a great stock, like this recent article by Motley Fool contributor Jennifer Saibil. In a nutshell, Visa has four big things going for it.
- It’s part of a duopoly in the credit processing space with Mastercard.
- It has a simple business model where it makes money on swipe fees across its huge network without credit risk and relatively little overhead.
- Its business model makes it highly efficient and able to generate huge profit and operating margins and lots of cash to constantly reinvest in itself.
- The world is gradually becoming ever more cashless.
And right now, Visa is relatively discounted, with a price-to-earnings (P/E) ratio of around 32, which is down from over 50 in 2021.
2. S&P Global
S&P Global (SPGI 0.06%) is a stock that came crashing down last year, falling about 29% in 2022 after a big run the previous three years. That price drop helped P/E ratio drop to about 30, down from 41 at the end of 2021, which makes it a good time to buy.
The stock for this financial information and analytics giant is up about 10% year to date. Over the past 15 years, it has posted an annual return of 15.8%.
Like Visa, S&P Global has some huge competitive advantages that make it one of the steadiest, most consistent long-term performers. It operates three primary segments and two have large competitive moats. One moat comes from being the market leader and one of just three major credit rating agencies. Another moat relates to being the market leader and one of just a handful of major index providers. It also has a large and growing market intelligence business, which was bolstered last year by the acquisition of IHS Markit.
Like Visa, S&P Global is also highly efficient, with a 40% operating market and a 16.5% return on equity. It’s bolstered by some $3.9 billion in free cash flow from its businesses, which are primarily fee and subscription-based.
3. SoFi Technologies
SoFi Technologies (SOFI -1.16%) is a fintech stock that took a huge hit last year, as its stock price was down nearly 71% in 2022. The relatively young company has been growing its customers and revenue rapidly but has struggled with high expenses, made difficult by higher interest rates, which have increased investment costs.
But the growth numbers are undeniable for this online lender, which is a little different from most online banks because it actually has a bank charter and can take deposits, so it can fund its own loans. It is also unique in that it has a technology services business that allows it to sell its banking-as-a-service (BaaS) platform to other companies.
SoFi saw record revenue in the fourth quarter, up 60% year over year, and members, or customers, up 51%. As revenues continue to rise, the net loss continues to shrink, and the company expects to be profitable by the end of this year. With the stock trading at about $7 per share, it is a good time to buy SoFi.
The bear market has taken a bite out of these three stocks, but it just makes them better long-term buys at their reduced valuations.
Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard, S&P Global, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.