It’s been a rough couple of months for tech stocks and growth-seeking investors. All of the major indexes, many of which have been led higher by growth stocks, have officially entered correction territory.
And things have been even tougher for the Nasdaq 100. This index, comprising the 100 largest nonfinancial companies listed on the Nasdaq exchange, ended Monday down more than 20% from its all-time high. In other words, it’s officially in a bear market for the first time in two years.
While steep drops in market-leading indexes can be unnerving, they’re historically a great time to put your money to work. Eventually (key word!) every correction and bear market throughout history has been wiped away by a bull market rally.
With the Nasdaq 100 bear market now a reality, the following three components stand out as screaming buys.
The beauty of cybersecurity is that it has evolved into a basic necessity over the past two decades. Robots and hackers have grown more sophisticated at stealing data and information over time, and they’re certainly not going to take a day off just because Wall Street had a bad day or inflation is rising in the United States. With businesses moving more data than ever onto the cloud, third-party providers like CrowdStrike are being leaned on to a large degree.
CrowdStrike focuses on end-user security. It has separated itself from the competition with its cloud-native Falcon platform, which relies on artificial intelligence (AI) to grow smarter at recognizing and responding to potential threats over time. With the platform overseeing around 1 trillion daily events, it’s getting plenty of practice in identifying threats.
The proof is in the pudding as to whether CrowdStrike’s security platform is loved by businesses. Over the past five years, the company’s subscriber count has skyrocketed from just 450 to 16,325 at the end of its fiscal year. What’s more, it’s working on a 16-quarter streak of dollar-based net retention rates of at least 120%. In simpler terms, it means existing clients have spent at least 20% more year over year for every quarter over the past four years.
Getting existing clients to spend more has always been the most impressive thing about CrowdStrike. In five years, the percentage of clients with four or more cloud subscriptions has jumped from the high single digits to 69%, as of the end of fiscal 2022.
Even though CrowdStrike isn’t cheap in a true fundamental sense, its superior growth rate and exceptionally high adjusted subscription gross margin make it a screaming buy on any significant weakness.
Another stock that’s a screaming buy with the Nasdaq 100 in bear market territory is China-based internet content giant Baidu ( BIDU -2.47% ).
In recent weeks, China-based stocks listed in the U.S. have taken it on the chin. There’s concern about rapidly spreading cases of COVID-19 in China and how that might affect the domestic and global economy.
There are also renewed worries about the ongoing listing of Chinese stocks in the United States. Although the Securities and Exchange Commission recently cited five China-based companies that could face delisting, Baidu wasn’t one of the names on the list.
It wouldn’t be on this list of screaming buys if I felt either of these concerns had any teeth to them. While China’s zero-COVID policy could slow growth in the near term, I don’t view COVID as having a material impact on Baidu’s long-term growth strategy.
Since China is such a unique and controlled market, Baidu’s dominance of internet search should remain unmatched. According to GlobalStats, the company was responsible for 84% of China’s internet search in February, and hit nearly 87% in November. The next-closest competitor is Microsoft‘s Bing at a mere 5.5% share in February. This makes Baidu the logical go-to for businesses that want to advertise, and that should afford the company excellent ad pricing power.
What’s arguably even more exciting is the company’s non-advertising revenue, which grew by 63% in the fourth quarter from the prior-year period. This segment is focused on cloud services and AI, which offer a faster sustainable growth rate and better long-term margins than the advertising side of the business.
Thanks to the cloud and AI, Baidu has a real shot at sustaining double-digit sales growth. With shares of the company approaching a multiple of just 10 times Wall Street’s forward-year consensus earnings, I believe now is the time to pounce.
I know: Intel is about as boring a company as I could probably have put on this list. It’s been growing at a relatively slow rate compared to other semiconductor companies, and in recent quarters has been hurt by supply chain concerns. Nevertheless…
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