Investing in the stock market can lead to financial freedom — but getting from Point A to B is often a bumpy ride.
Over the past couple of months, all three major U.S. stock market indexes have undergone their largest corrections in two years. The benchmark S&P 500 and iconic Dow Jones Industrial Average both entered correction territory with declines in excess of 10%. Meanwhile, the tech-focused Nasdaq Composite dropped as much as 22% below its November all-time closing high, firmly placing it in a bear market.
While the velocity of downside moves in the broad-market indexes can be scary, history has shown countless times that you’re smart to buy into these dips. That’s because every single bear market and correction throughout history has eventually been erased by a bull market rally. Buying great companies at a discount and allowing your investment thesis to play out over long periods of time is a moneymaking strategy.
With many great companies now at a discount, it looks like the ideal time to buy these three surefire growth stocks on the dip.
Nio has faced a bit of a double whammy of late. First, it and its auto stock peers are contending with semiconductor chip and part supply shortages that are constraining existing manufacturing and expansion plans. The other worry is the potential for the delisting of certain China-based stocks from major U.S. exchanges. Although China-based Nio hasn’t been mentioned by regulators as a delisting candidate, virtually all China-based companies listed on U.S. exchanges have gone for a wild ride.
While semiconductor chip and part shortages are a tangible problem, they’ve had little or no impact on EV demand. What EVs Nio can produce are selling. Despite pandemic-related supply constraints, Nio has increased its quarterly EV deliveries from less than 4,000 vehicles in Q1 2020 to more than 25,000 EVs in the fourth quarter of 2021. Management has previously stated that the company’s annual EV delivery run rate could hit as high as 600,000 (i.e., 50,000 per month) before the end of 2022. In other words, this isn’t a demand issue.
Nio has also impressed with its various sources of innovation. For example, the company has introduced two new sedans that look to be direct competitors to Tesla. The recently unveiled Nio ET7 and ET5 offer up to 621-mile range with a battery upgrade, which is superior to what buyers can get with the Tesla Model S or Model 3.
Furthermore, Nio’s battery-as-a-service (BaaS) program, which was introduced in August 2020, looks like a game-changer. Consumers enrolled in BaaS receive a discount on the initial purchase price of their Nio EV and can charge, swap, and upgrade their batteries in the future. In return, Nio generates a monthly fee from its BaaS members. It’s a way for the company to trade lower-margin near-term revenue for high-margin subscription revenue that’ll keep early buyers loyal to the brand.
At worst, Nio should turn the corner to recurring profitability in 2023, all while maintaining a superior growth rate throughout the decade.
Another high-growth, surefire stock investors can confidently buy on the dip is U.S. multi-state operator (MSO) Cresco Labs ( CRLBF 3.44% ).
U.S. marijuana stocks, as a whole, have been pummeled for the past 13 months. The expectation early last year was that a Democrat-led Congress and President Joe Biden would quickly and easily pass federal cannabis reforms. When that didn’t come to fruition, the cannabis bulls went back into hibernation. However, now looks like the perfect time for them to wake from their slumber.
To tackle the elephant in the room, federal legalization would be nice from an operating efficiency perspective for MSOs, but it’s not necessary with around three-quarters of all states having legalized weed in some capacity. As long as the federal Department of Justice is allowing states to regulate their own industries, MSOs like Cresco Labs can be successful.
There are three reasons Cresco makes for such an amazing buy right now. First, the company’s retail operations are expanding at a steady pace. Cresco Labs recently opened its 50th dispensary, with the company especially focused on high-dollar limited-license markets, such as Illinois and Ohio. Markets where retail license issuance is limited ensures that Cresco has fair shot to build up its brand(s) and clientele without being overrun by a larger MSO with deep pockets.
Second, and building on this previous point, Cresco Labs announced its intent to acquire MSO Columbia Care ( CCHWF 2.04% ) last week. If this deal closes by the fourth quarter of 2022, the combined company will have more than 130 operating dispensaries in 18 states. Columbia Care has had a penchant for inorganic growth in recent years, and this deal will rapidly expand Cresco’s reach in a number of high-dollar cannabis markets.
Lastly, Cresco is the leading wholesale cannabis company in the United States. Wall Street often frowns on wholesale weed due to its lower margins relative to the retail side of the equation. However, Cresco more than makes up for this with exceptional volume. That’s due to it holding a highly coveted cannabis distribution license in California, the biggest weed market in the country.
In short, Cresco Labs is quickly becoming a beast in the U.S. cannabis space.
The third surefire growth stock investors can buy on the broader-market dip is social media platform Pinterest ( PINS -3.23% ).
The two key concerns with Pinterest are its declining monthly active users (MAUs) over the past three quarters, as well as Apple enacting iOS privacy changes. The fear with the latter is that it’ll adversely impact companies dependent on advertising revenue, like Pinterest. Thankfully, neither of these issues should be of concern to patient investors.
To start with, Pinterest’s nine-month MAU decline looks to be nothing more than a normalizing of its user growth following a period of supercharged user interest caused by the pandemic. As vaccination rates have ticked up, people are getting out of their homes more often. Yet if you look at Pinterest’s MAU increases over the past four or five years, you’ll see the uptrend in MAU growth is right on track.
What’s more, Pinterest has had no trouble monetizing the 431 million MAUs it finished with in 2021. Global average revenue per user (ARPU) climbed 36% in 2021, with international ARPU up an even more impressive 80%. This clearly shows that advertisers are more than willing to pay up to get their message in front of Pinterest’s user base.
As for Apple’s iOS privacy changes, they’re pretty much a moot point for Pinterest. Whereas most social media companies rely on data tracking to determine what their users like, the entire premise of Pinterest is for users to post about the things, places, and services that interest them. It’s the ideal platform for merchants to target users, and it should translate into exceptionally strong pricing power for Pinterest.
With plenty room for ARPU expansion and the company generating substantial cash flow from its operations, any notable decline in Pinterest’s shares represents a buying opportunity.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.