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3 Unstoppable Growth Stocks to Buy if There's a Market Sell-Off

Motley Fool - Sat Oct 21, 2023

There's no telling when the next market downturn will arrive, or which sectors might be spared the worst of the carnage when it strikes. But growth stocks are almost certain to be among the hardest hit when markets start to slide. These investments are vulnerable due to their high valuations and elevated growth expectations compared to, say, dividend stocks, which are considered safer.

That's why it pays for a growth stock investor to have their watch list ready for when these excellent businesses go on sale. With that goal in mind, here are a few surging stocks worth buying on the next dip.

1. Lululemon Athletica

There's no shortage of buzz around Lululemon Athletica's (NASDAQ: LULU) stock right now. Shares are near multi-year highs following the announcement that the company will take Activision Blizzard's place in the S&P 500, potentially boosting demand for the stock among large index funds.

The athleisure retailer's business is also firing on all cylinders right now. Revenue last quarter was up a robust 20% thanks to solid growth at existing locations and a quickly expanding store base. Lululemon is seeing healthy demand for its core yoga apparel, but its brand strength is also helping it move into new geographic markets and complementary product niches like outerwear and footwear.

Its finances are excellent, with gross profit margin holding at 59% of sales compared to Nike's 44%. Operating profit margin is double Nike's 11% level as well. This is a business worth keeping on your watch list.

2. Netflix

Netflix(NASDAQ: NFLX) had plenty of good news for shareholders in its mid-October earnings update. The company achieved blockbuster membership gains in the Q3 period thanks to a crackdown on password sharing and excitement around new content releases. Management hiked its profit margin forecast and said it's now on track to post free cash flow of $6.5 billion, up from the prior target of $5 billion.

Sure, some of this boost is just a temporary lift from the production pause tied to the recent writer and actor strikes. But Netflix is still expecting profitability to rise to between 22% and 23% of sales next year, helped along by another round of price increases.

Wall Street has responded to this good news by pushing the streaming video giant's shares back toward 2023 highs. There's room for more growth from here, but cautious investors might still prefer to simply watch this stock until the next pullback.

3. Palo Alto Networks

The cybersecurity industry has a bright long-term outlook, and Palo Alto Networks(NASDAQ: PANW) is well-positioned to capitalize on it. The software-as-a-service company revealed in late August that sales were up a blazing 26% to cross $2 billion.

Large customers loved Palo Alto's full platform of services, which are becoming more valuable these days thanks to new artificial intelligence (AI) integrations. "We finished off the year with strong execution and the changing environment drove more customers toward platformization," CEO Nikesh Arora said in a press release.

Growth isn't as valuable if it doesn't also bring improving financial metrics. Palo Alto isn't disappointing on this score, either. After recently breaking into positive earnings territory, profit margins are jumping. Management is projecting over 20% earnings growth this year as free cash flow lands near 40% of sales.

As you might expect, this good news has lifted Palo Alto's valuation. But keep an eye on this growth stock, because a downturn would likely produce a much more attractive price for this stellar business.

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Demitri Kalogeropoulos has positions in Netflix and Nike. The Motley Fool has positions in and recommends Lululemon Athletica, Netflix, Nike, and Palo Alto Networks. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.

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