3 growth stocks you’ll regret not buying on the downside

A bear market occurs when a financial asset or stock index drops 20% (or more) from its all-time high. technology driven Nasdaq-100 The index has spent much of 2022 firmly in this territory, but thanks to a strong rebound over the past month, it has narrowed its decline to just 18.6%.

It was supported by better-than-expected financial results from the tech sector in the quarter ended June 30, combined with other clues that the 40-year high in inflation is easing. A panel of Motley Fool contributors have identified three tech stocks that, despite strong gains recently, remain well below their all-time highs and still present an opportunity. Here’s why investors should buy Amazon (AMZN -2.86%), Lemonade (LMND -11.22%)and The trading post (TTD -4.96%) on the dive.

This tech stock is a screaming buy

Trevor Jennewin (Amazon): High inflation has taken its toll on Amazon, slowing sales growth and squeezing margins. Worse, consumers spent less time shopping online as brick-and-mortar retail rebounded, leading to difficult year-over-year comparisons. To that end, Amazon saw its revenue rise just 7% to $121 billion in the second quarter, and it posted a net loss of $2 billion.

These results are undoubtedly disappointing and Amazon could continue to struggle as inflationary pressures persist. But some investors focused on temporary problems while ignoring the long-term potential. As a result, Amazon saw its share price drop 24% and the stock is currently trading at three times its sales. That’s a bargain compared to the five-year average of 3.8 times sales, especially since the company is a key player in three high-growth markets.

Amazon operates the most visited online marketplace in the world and will power nearly 40% of online retail sales in the United States this year, according to eMarketer. This leaves Amazon well positioned to capitalize on a tremendous market opportunity. U.S. online retail sales are expected to grow 12% annually to $1.5 trillion by 2025, and global online retail sales will grow 10% annually to $7.4 trillion over the same period.

Amazon Web Services (AWS) is by far the most popular public cloud provider. In the second quarter, AWS captured 34% of the cloud infrastructure market share, up from 31% the year before. Meanwhile, Microsoft Azure saw its market share decline by 1 percentage point. Investors can attribute this success to three things: AWS was first to act, it has consistently set the bar for innovation in the industry, and its portfolio of cloud services is more robust than that of any other vendor. On that note, the cloud computing market is expected to grow 16% annually to reach $1.6 trillion by 2030.

Finally, Amazon has become a powerhouse in digital advertising, growing its market share in the United States from 2% in 2016 to 12% in 2021, and that figure will climb to 15% by 2023, according to eMarketer. To put that into context, digital ad spending in the US is projected to grow 9% annually to reach $315 billion by 2025, putting Amazon in front of another massive market opportunity.

Here’s the big picture: the Amazon brand is synonymous with e-commerce, but the company also dominates the market for cloud services and is gaining market share in digital advertising. It’s especially exciting because cloud providers and advertisers typically make much higher margins than retailers, which means Amazon’s profitability should accelerate in the coming years.

For all these reasons, it’s time to buy this growth stock.

Transforming a centuries-old industry with artificial intelligence

Anthony Di Pizio (Lemonade): You could be forgiven for admitting that you don’t like dealing with your insurer – a lot of people feel the same way. Making a claim can be stressful and time-consuming, especially when most of the process is over the phone. But Lemonade is a promising insurer that promises to change all that. It uses artificial intelligence not only to redesign the customer experience, but also to offer better insurance products.

The company’s web bot is called Maya. He can write a quote in less than 90 seconds, and for Lemonade’s 1.58 million existing customers, he can settle claims in less than three minutes. Lemonade currently operates in five categories of insurance, including renters, homeowners, life, pets, and the newest addition, auto insurance.

In Q2 2022, Lemonade unveiled its most predictive AI model yet for pricing premiums, called LTV6. It calculates the likelihood of a particular customer buying multiple products from Lemonade, the likelihood of them making a claim, and even whether they might go for a competing insurer. Then it uses this information to predict the customer’s lifetime value, which can be used to determine insurance premiums.

The second quarter was one of Lemonade’s best so far, financially speaking. It generated all-time highs across multiple metrics, with average premium per client exceeding $290 and in-force premiums increasing 54% year-over-year to $458 million. As a result, second-quarter revenue soared 77% to $50 million.

Lemonade’s challenge now is to ensure profitability after years of net losses. He told investors he could reach that milestone without requiring additional capital, and if that’s true, now could be a great time to buy Lemonade shares since they’re down 81% from their record level. Not to mention, the auto insurance segment currently accounts for 20% of the company’s sales, and this market could represent a $316 billion opportunity in 2022 alone.

This leader continues to dominate

Jamie Louko (the trade office): Investors weren’t expecting much from The Trade Desk in the second quarter given the challenging macroeconomic environment. With high inflation and a potential recession on the horizon, many companies could easily reduce their ad spend. Since The Trade Desk makes money on its clients’ advertising spend, it was likely going to be affected by changes to advertising budgets.

However, that was not the case. Second-quarter revenue hit $377 million, a 35% year-over-year jump. This showed that while advertisers are reducing their spend on some platforms, they are not doing so on The Trade Desk. Additionally, the company believes it will continue to see strong demand for its services: Third-quarter revenue is expected to grow 28% year-over-year to $385 million.

Why is The Trade Desk seeing such healthy demand in this environment? It is the leader in digital advertising, particularly outside walled gardens such as Alphabetit’s Google. In other words, if advertisers are looking to buy advertising space on a connected TV platform or other independent platforms, The Trade Desk is the best way to do it. Additionally, The Trade Desk offers a high return on advertising spend to its clients, and with advertising budgets tightening, businesses are forced to spend only where they will see the greatest return on investment.

Even in an environment where advertising is supposed to be struggling, The Trade Desk has continued to outpace its rivals and gain market share. So while the stock is certainly not cheap at 23x forward sales, you should consider buying this high-quality company when the stock is down 34% from its all-time highs.

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