Much has changed since the dotcom bubble of the late 1990s burst dramatically. For starters, we’re all connected to the internet 24/7 through devices that fit in our pockets.
One thing that hasn’t changed in the past two decades, however, is investor psychology. As soon as the economy hits a rough patch, the innovative growth stocks people were flocking to suddenly seem toxic to the average investor.
Despite several attempts to rally, the Nasdaq Compound index ended the fourth quarter of last year 1% lower than it started. That’s four straight quarters of losses for the growth-laden index, something that hasn’t happened since the dot-com crash.
Constant losses are scary, but it’s important to remember that every bear market in history has been erased by subsequent rallies. We don’t know when the next rally will begin, but here are three stocks poised to soar when it does.
Shares of Amazon (AMZN -0.21%) dropped by nearly half in 2022 and it’s not hard to see why. The e-commerce giant peaked in 2021 because the company was able to meet growing demand during the pandemic lockdown period. Unfortunately, the investments that lifted Amazon quickly became an albatross around its neck once e-commerce activity returned to normal.
Investors want to buy shares of this battered stock right now, as Amazon earnings are more than likely on their way back. This is because the company has many levers to pull to put its results in the right direction. First, Amazon Web Services (AWS) has a large share of the cloud services market and likely generated around $23 billion in operating revenue this year.
As AWS contributes an even larger sum to Amazon’s bottom line in 2023, the company’s non-profit operations will become much smaller. Amazon’s global digital group, which includes Prime Video and voice assistant Alexa, is burning billions even though none of these efforts generate revenue directly. A much smaller workforce in this division should quickly raise the bar.
TransMedics (TMDX 2.22%) the stock soared 222% in 2022. Without a bear market keeping growth stocks under pressure, it would likely have gone to the moon. This under-the-radar medical technology company is rapidly changing the way we preserve transplantable organs. Third-quarter revenue jumped 378% year-over-year.
In a clinical trial that illustrates the value of TransMedics’ Organ Care System (OCS), surgeons were willing to use 89% of donated hearts after cardiac death (DCD) if those hearts were kept fresh in the ‘SCO. During the same trial, zero cold-stored hearts were used.
Keeping a heart cool by supplying it with oxygenated blood is nothing new, but TransMedics OCS is the only device approved to store and transport multiple organs. It is currently approved to keep hearts, lungs and livers fresh. Kidney transplants are more common than hearts, lungs and livers combined, and the company could expand into this area in just a few years.
InMode (INMD 0.39%) is a manufacturer of medical devices increasingly popular with cosmetic surgeons. Using their minimally invasive handheld devices, a provider can perform a wide range of cosmetic procedures in their offices without making incisions.
Third-quarter sales of InMode’s workstations were up 29% year-over-year, but that’s not how the company will make most of its money in years to come. . High-margin revenue from consumable kits that must be replaced after each procedure will allow InMode’s results to continue to soar long after its workstation market is saturated.
Unlike most Nasdaq-listed growth stocks that were hammered in 2022, InMode can fuel its future growth with internally generated earnings. Net income for the past year amounted to 41% of total turnover.
Despite its prime position in the growing market for minimally invasive cosmetic procedures, you can buy InMode stock for just 17.3 times trailing earnings. Investors who buy the stock at that price and hold it could see above-market gains even if the company is growing at half its previous rate.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Cory Renauer holds positions within the InMode Group and TransMedics. The Motley Fool holds positions and recommends Amazon.com, InMode and TransMedics Group. The Motley Fool has a disclosure policy.