Home » Investing » Stocks for Beginners » Bear Market: Your Chance to Create Serious Wealth With 2 Growth Stocks
Bear markets bring incredible wealth-creation opportunities for new investors. Here’s why you should focus on solid growth stocks.
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Kay Ng
Kay began investing in dividend stocks around 2008 via the concept of value investing. Since then, she has expanded into growth investing, including in small caps. Her passion for investing has only grown over the years! After graduating from UBC with a BSc in Computer Science, she took university courses in financial markets, finance, and financial accounting. She has contributed her works to Motley Fool, Sure Dividend, and Seeking Alpha.
The Canadian stock market has dipped close to 9% from its 52-week high. The U.S. stock market has corrected almost 19%. We’re not yet in bear market territory, which, by definition, means a correction of 20% or greater from a high. However, we could potentially experience a bear market soon, as some economists believe we have an increased chance of experiencing a recession over the next 12 months.
No matter what, investors should not fear market corrections or bear markets, because they provide opportunities for you to create serious wealth by investing in solid growth stocks.
Market downturns aren’t the time to take excessive risk, though. Forget about growth companies that are unprofitable or have poor balance sheets. It would be smart to diversify your capital across better businesses — wonderful businesses that grow their profits and cash flows and have rock-solid balance sheets. Here are some growth stock ideas to start your research.
Nuvei stock
Nuvei (TSX:NVEI)(NASDAQ:NVEI) stock is an interesting pick for long-term growth. It’s a payment platform that provides solutions in mobile, online, and in-store payments to its merchants and partners.
Recent results have been promising. The company reported volume growth of 42% to US$29.2 billion and revenue growth of 43% to US$214.5 million in the first quarter. Particularly, e-commerce volume represented 88% of total volume and organic revenue growth was 32%. Its adjusted EBITDA, a cash flow proxy, also jumped 40% to US$91.6 million.
For the quarter, adjusted earnings per share increased 31% to US$0.46. And cash flow from operating activities rose 23% to US$65.7 million. At the end of the quarter, it had US$735 million in cash that provides financial flexibility.
Management set medium targets including volume growth rate of +30% and revenue-growth rate of +30%. As well, it targets an adjusted EBITDA margin of +50% over the long term.
The tech stock was whipsawed by the growth stock bear market. NVEI stock has lost about 66% from the peak at roughly $61 per share at writing. Nuvei stock investors who can withstand the volatility could do well over the next three to five years. Over the next 12 months, analysts are calling for upside potential of 76%!
Brookfield Asset Management stock
Some investors may be more comfortable holding growth stock Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) instead. The global alternative asset manager invests in a diversified portfolio of real assets (real estate, infrastructure, private equity, renewable power, credit) — many of which are cash cows.
While expanding its ever-growing portfolio, BAM has been collecting increasing management and performance fees, as well as raising its dividend. The growth stock’s 10-year dividend-growth rate is 8.4%. And it yields about 1.2% today.
The stock’s correction of about 25% from its peak is a great time to accumulate shares for long-term investors. BAM’s goal is to generate long-term rates of returns of 12-15% on its investments, which it has achieved and will continue accomplishing. In the past 10 years, the growth stock has delivered annualized returns of approximately 17%, which implied doubling investors’ money every four years or so. Because Brookfield Asset Management stock is cheap now, it’s likely to deliver a compound annual growth rate of +16% over the next decade. Analysts think the quality stock is discounted by about 27%.
Going short in bear markets is one of investors' most common strategies. As a trader or investor, you short-sell when you feel that the market might fall going forward. If your feeling is correct and the market indeed falls in value, you stand to make a profit.
Defensive stock sectors including consumer staples, utilities, and health care tend to outperform during bear markets. Government bonds offer important diversification benefits and the potential of strong returns in a recession.
If you're itching to make a move, a bear market can be a great time to diversify your portfolio. You can invest in some less-risky assets like bonds or consider seeking out dividend-paying stocks. Just make sure you don't get carried away.
It is an agreement between the trader and the CFD provider to pay each other the difference between the opening and closing prices of a financial instrument. CFDs allow traders to gain exposure to an asset without having to own the underlying asset.
Bonds also are an attractive investment during shaky periods in the stock market because their prices often move in the opposite direction of stock prices. Bonds are an essential component of any portfolio, but adding additional high-quality, short-term bonds to your portfolio may help ease the pain of a bear market.
But you can maximise your chances of a profit in a bear market by following bearish-friendly strategies. These include diversifying your holdings, focusing on the long-term, taking a short-selling position, trading in 'safe haven' assets and buying at the bottom. Can you lose money during a bear market?
If you have a balanced, diversified portfolio that includes assets such as government bonds, defensive stocks, and cash, as well as equities, you shouldn't need to sell during a bear market.
The duration of bear markets can vary, but on average, they last approximately 289 days, equivalent to around nine and a half months. It's important to note that there's no way to predict the timing of a bear market with complete certainty, and history shows that the average bear market length can vary significantly.
Bonds — Bonds typically provide lower rates of returns than stocks on average but are usually less volatile and safer. Investing in bonds may help hedge your portfolio against the ups and downs of the stock market. Cash — This can include savings deposits, certificates of deposit and money market accounts.
However, a general rule of thumb suggested by U.S. Bank is that your cash or cash equivalents should range from 2% to 10% of your portfolio, although the right answer for you still depends on your circ*mstances.
The longest bear market lingered for three years, from 1946 to 1949. Taking the past 12 bear markets into consideration, the average length of a bear market is about 14 months. How bad has the average bear been? The shallowest bear market loss took place in 1990, when the S&P 500 lost around 20%.
The way you make money from stocks is by the selling them at a higher price than you bought them. For instance, if you bought a share of Apple stock at $200 and sold it when it reached $300, you would have made $100 (minus any taxes you'd have to pay on the money you made).
A bearish market is typically driven by bearish indicators or factors such as economic downturns, geopolitical tensions, or negative sentiment among market participants. One of the key indicators of a bearish trend is a sustained downtrend in major market indices.
Long-term investors can find many valuable stocks at lower prices during a bear market, making bear markets a good time to buy if you can afford to wait to see your investments rebound. Traders looking to make a short-term profit may need to use other strategies during a bear market, such as short selling.
By investing a fixed amount of money at regular intervals regardless of market conditions, you're more likely to be able to purchase equities at more affordable prices and potentially see the shares rise in value once the market rebounds.
You could just buy a bunch of stocks all in one go: since markets tend to rise over the long term, paying a high price on a given day might not make much difference down the road, and buying at what turns out to be a particularly low point could help you eventually pocket more profit.
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