There is no telling when the next market downturn will come, or which sectors will escape the worst of the carnage when it comes. However, growth stocks will almost certainly suffer the most when markets start to pull back. These investments are sensitive due to their high valuations and heightened growth expectations compared to, say, dividend stocks, which are considered safer.
That’s why it pays for an investor who specializes in growth stocks to have a watchlist ready when these excellent companies come up for sale. With that in mind, here are some growth stocks worth buying during the next dip.
1. Lululemon Athletica
There is no shortage of noise around Lululemon Athletic‘S (LULU -0.09%) wrestling now. Shares are near multi-year highs following the announcement that the company will take Activision Blizzard’s place on the market S&P500potentially increasing demand for stocks among large index funds.
The sports equipment retailer’s operations are also currently running at full speed. Revenues grew a solid 20% in the most recent quarter, driven by solid growth in existing locations and a rapidly growing store base. Lululemon is seeing strong demand for its core yoga apparel, but the brand’s strength is also helping it expand into new geographic markets and complementary product niches such as outerwear and footwear.
Its financials are excellent, with gross profit margin remaining at 59% of sales compared to Nikeis 44%. The operating profit margin is also twice Nike’s level of 11%. This is a business worth having on your watchlist.
Netflix (NFLX -0.20%) he delivered a lot of good news to shareholders in his mid-October earnings update. In the third quarter, the company achieved massive membership growth thanks to pent-up password sharing and excitement around the release of new content. Management raised its profit margin forecast and said it is now on track to achieve free cash flow of $6.5 billion, up from its previous target of $5 billion.
Sure, some of this acceleration is just a temporary pause in production due to the recent writer and actor strikes. Netflix, however, still expects profitability to increase next year to between 22% and 23% of sales, helped by another round of price increases.
Wall Street reacted to this good news, pushing the video streaming giant’s stock back to its 2023 highs. There is room for more growth from here, but cautious investors may still prefer to simply watch this stock until the next pullback.
3. Palo Alto Networks
The cybersecurity industry has good long-term prospects and Palo Alto Networks (PANW -3.96%) is in a good position to take advantage of this. In late August, the software-as-a-service company revealed that sales were up a whopping 26%, surpassing $2 billion.
Large clients love Palo Alto’s full platform of services, which are now becoming increasingly valuable thanks to new artificial intelligence (AI) integrations. “We ended the year on a strong note, with the changing environment driving more customers towards platformization,” CEO Nikesh Arora said in a press release.
Growth isn’t as valuable if it doesn’t involve improving financial metrics. Palo Alto doesn’t disappoint in this regard either. Having recently entered positive earnings territory, profit margins are increasing. The management board forecasts that profits will increase by over 20% this year, and free cash flow will amount to nearly 40% of sales.
As you might expect, this good news boosted Palo Alto’s valuation. However, it’s important to keep an eye on this growth rate, as a downturn would likely result in a much more attractive price for this great business.
Demitri Kalogeropoulos works at Netflix and Nike. The Motley Fool ranks and recommends Lululemon Athletica, Netflix, Nike and Palo Alto Networks. The Motley Fool recommends the following options: Long January 2025 for $47.50 Nike calls. The Motley Fool has a disclosure policy.
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