After 2022's savage bear market, buying opportunities are everywhere. Growth stocks got hit especially hard, and that means investors who buy the dip could set themselves up for favorable returns down the road.
With that in mind, here are a pair of exceptional growth stocks that are cheaper than they used to be and also likely to soar if a bull market comes.
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1. Ginkgo Bioworks
Down by 67% from a year ago, Ginkgo Bioworks (DNA 1.89%) is a biotech growth stock that has a solid chance of being a favorite pick during the next bull market. While it isn't profitable yet, its business model is exceptional, and here's why.
Microorganisms like yeast and bacteria are useful because they can be genetically engineered and cultured at large scale to produce chemicals that companies need, like nucleic acids for vaccines, or small molecules for drug development.
However, it's quite difficult to get microorganisms to do exactly what you want them to do -- even in the tightly controlled context of a petri dish. And growing them at industrial scale presents additional challenges that make the entire endeavor somewhat intimidating for many businesses to approach. That's where Ginkgo comes in, acting as a development partner to help companies engineer and manufacture customized cell platforms so that they don't need to experience the headache of doing it in-house.
During a bear market, such an ambitious and unproven model is what likely led to Ginkgo's tumbling stock price. And that's even as it launched 59 new collaborations in 2022 while bringing in upwards of $478 million in sales, a 52% rise over 2021's total.
During a new bull market, however, investors could focus on Ginkgo's ever-improving economies of scale, in which each new program it initiates drives down its costs while adding to its knowledge base. Moreover, the company focuses heavily on automation at every stage of the cell engineering and manufacturing process. Growth-hungry investors might appreciate Ginkgo's increasing efficiency.
Just be aware that this company's growth potential is not guaranteed, and it's quite a risky purchase, especially right now. It's entirely possible that its emphasis on robotics and fancy machine learning techniques will end up as an expensive and unprofitable folly. Still, if you're not afraid to bet on an innovative business that's looking to efficiently solve one of biopharma's most persistent problems, it's worth considering before the bull market rolls around.
2. Costco
Costco Wholesale (COST -0.86%) is another exceptional growth stock, and unlike Ginkgo Bioworks, it doesn't need to solve any engineering problems or do anything dramatically different to keep growing while being profitable. Over the last 12 months, the shares fallen a little over 10%. But there's reason to believe that Costco will be a great stock to own regardless of a bull market coming.
You're probably familiar with Costco thanks to its Kirkland brand wares, which range from the banal, like socks, to more exotic items, like champagne. It also sells groceries and all other manner of products from third-party brands, not to mention providing somewhat esoteric services like garage door installation and pet insurance.
Of paramount importance is that the company doesn't let just anyone buy its offerings; it charges an annual membership fee, with the idea being that members can get much better deals at its warehouses than they'd find elsewhere.
Over the last five years, its quarterly net income grew to reach more than $1.4 billion in its Q2 of fiscal 2023 despite its narrow profit margin of around 2.5%. Costco's secret is that its membership fees are where it finds the bulk of its profits; its membership fees in the second quarter were more than $1 billion, whereas its net sales were above $54.2 billion. And it can hike those fees whenever it chooses to, so it can continue to report rising profits even if there's an economic downturn.
Plus, when consumers are feeling the squeeze on their wallets from phenomena like inflation, they're likely to keep returning to the warehouses where they know they can get a good deal. When times are good, it can also capture the benefit of people spending more on product categories like electronics and gourmet foods.
Costco is therefore significantly less risky than the average growth stock. As if all of the above weren't enough, it pays a dividend that currently yields around 0.7% -- and occasionally pays out a special dividend, too. So if you're interested in getting your hands on a stock that's likely to keep rising during a bull market, Costco is a great option.
Alex Carchidi has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
