2 Spectacular Growth Stocks to Buy in the Worst Nasdaq Bear Market of the Decade

Last year was difficult for investors. Broad based S&P 500: posted its worst first-half performance in more than five decades, and the benchmark index has now declined for three consecutive quarters. While tech heavy Nasdaq Composite: it stumbled into its worst bear market in a decade.

Those losses have taken a toll on many portfolios, but smart investors know that declines are buying opportunities. Here are two impressive growth stocks to buy now and hold forever.

Block: A disruptive fintech company

Block (SQ: 4.43%) is the fintech company behind the Square and Cash App brands, both of which have been disruptive forces in their respective industries. The Square ecosystem includes a suite of hardware, software and banking services that make commerce simple. These solutions are seamlessly integrated, unlike the packaged products offered by traditional merchant service providers.

Similarly, Cash App is a digital wallet that facilitates consumer finances. It allows users to deposit, borrow, spend and invest money from a single platform, and it was ranked as the most downloaded mobile financial app in the US in the first half of 2022, leading PayPal: and Venmo. Even better, Block recently added a discovery feature to the Cash app that allows consumers to browse and purchase items from merchants that accept Afterpay or Cash App Pay. That strategy can overstress adoption.

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Despite the challenging economic environment, Block posted impressive financial results in the third quarter. Cash App’s gross profit rose 51% to $774 million, while Square’s gross profit rose 29% to $783 million. Overall, total comprehensive income increased 38% to $1.6 billion and non-GAAP earnings increased 68% to $0.42 per diluted share. More importantly, shareholders have good reason to be optimistic about the future. Block estimates its target market at $190 billion in gross profit, and an ambitious growth strategy should continue to drive market share gains.

In particular, the continued addition of merchant capabilities to Cash App should bring more users to the digital wallet, and this should drive more businesses to adopt Afterpay and Cash App Pay. At the same time, Block is successfully going to market and expanding into new geographies as more mid-market sellers (ie, those with more than $500,000 in annual sales) and international sellers continued to adopt Square products in the third quarter.

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The stock currently trades at 2.3 times sales, a significant discount to its three-year average of 7.3 times sales. With that in mind, investors may regret not buying this rally on the dip.

Arista Networks. The leader in high-speed networks

Arista Networks (ANET: 1.10%) provides high quality networking equipment to data centers. Its key innovation is Extensible Operating System (EOS), the unique software that powers its entire portfolio of switch and routing equipment. That approach to software products is fundamentally different from legacy vendors that use multiple operating systems, making network management more complex and costly.

In short, Arista enables businesses to integrate their IT ecosystems, from public and private clouds to wired and wireless campus workspaces, into seamless networks running on a single operating system. Furthermore, Arista’s network platforms offer industry-leading performance, and the company has built a reputation for world-class customer support, as evidenced by its Net Promoter Score of 80.

These advantages have put the company at the forefront of the networking industry. In fact, Arista has a 41.5% market share in high-speed data center switches, while ranking second Cisco Systems occupies only 22.5% market share. That dominance translated back into strong financial results in the third quarter. Revenue rose 57% to $1.4 billion and GAAP earnings rose 61% to $1.13 per diluted share.

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Going forward, investors have good reason to be bullish. Cloud computing and data-intensive applications (such as streaming media and artificial intelligence) will continue to strain modern data centers, creating the need for faster networking solutions. As the market leader in rapid data center switching, Arista is well positioned to benefit from these trends. With that in mind, management puts its target market at $35 billion by 2025, leaving plenty of room for future growth.

As a caveat, the stock trades at 10.4 times sales, slightly above the three-year average of 10 times, but this growth stock is still worth buying for patient investors.

Trevor Jennewine holds positions at Arista Networks, Block, Inc. and PayPal Holdings. The Motley Fool has positions in and recommends Arista Networks, Block, Inc., Cisco Systems and PayPal Holdings. The Motley Fool has a disclosure policy.

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