3 Bold Growth Stocks to Buy Hand Over Fist In This Bear Market

As the year draws to a close and the holidays are upon us, some investors may be looking for a little holiday cheer after a challenging year for the stock market. With many growth stocks trading far from their highs, that cheer could come from the significant opportunities for bold long-term investors in 2023 and beyond.

Not every stock that collapsed in 2022 will bounce back to its previous high, but strong fundamentals should provide some solid clues as to where to look. At the end of 2022, three Fool contributors put their heads together to point you in the right direction. roku (ROKU -0.76%), DigitalOcean holdings (DOCN -1.67%)and Roblox (RBLX -0.75%) all are showing solid signs of an eventual recovery. Here’s what you need to know about these three stocks to buy in a bear market.

This streaming giant grows where it counts

Justin Pope (Roku): Roku garnered some attention in recent years as the streaming era began. It used to be known for selling devices that gave TVs access to streaming services. But the streaming platform is now getting more attention for its streaming services than for its devices. The stock was popular during COVID-19 when streaming came into its own, but it was crushed during this bear market as pandemic concerns eased. Shares are down a whopping 88% from their peak, leaving investors wondering if Roku is a bust as a stock.

Chart shows Roku's trailing-12-month revenue growth and quarterly revenue growth decline year-over-year since 2021.

ROKU Revenue (TTM) data by YCharts

Admittedly, things haven’t exactly gone smoothly for the company in recent months. Revenue growth has slowed dramatically. The chart above shows just how much growth has slowed this year. But there is much more to this story.

Roku sells ads to its users, and brands have scaled back ad spending since the summer over concerns about a potential recession. It’s something that’s being felt across the industry and not just limited to Roku. Roku is still adding new users at a healthy pace — they grew 16% year over year in the third quarter to 65.4 million.

Advertising is a cyclical business and revenue growth should pick up once advertising recovers. What matters is that Roku’s user base (its advertising audience) continues to grow each quarter.

In the meantime, Roku’s finances are rock solid and it’s weathering the storm. The company has $2 billion in cash on its balance sheet versus just $82 million in long-term debt. Despite the company’s struggles, the company only burned $30 million in cash during the third quarter. In other words, Roku’s existing cash can fund the company for the foreseeable future, so investors don’t have to worry about the company having to raise cash in the middle of a recession.

Roku’s huge drop in price could become a great opportunity if it keeps attracting new users, and that’s showing no signs of slowing down.

The Metaverse is the future – but it might be more childish than you expect

Jake Lerch (Roblox): When investors hear someone talk about “that metaverse company”, your first thoughts probably go to Meta platforms. But for me, Roblox is the company that has the right metaverse.

This year has been tough for both Meta Platforms and Roblox. Meta shares are down about 67%; Roblox shares are down 69%. Still, I think Roblox stock is a buy while Meta is not.

Both companies are working on the development of the metaverse, but with very different goals. Meta has spent more than $36 billion to create its version of the Metaverse. However, the reviews on what it has produced so far are not good. Personal avatars lack legs, graphics are underwhelming, and Meta’s virtual reality headset is both uncomfortable and expensive. Meanwhile, Roblox’ version of a metaverse thrives. It has over 58 million daily average users (DAUs) with over 13.4 billion hours of employment in the three months ended September 30th.

Granted, the Roblox Metaverse is a more humble concept. There’s no headset, and the target audience is kids (not office workers). But the concept of Roblox is working now and might be the only one that ever works. It remains to be seen if adults will ever embrace the Metaverse. In the end, it could be a playground – a place adults visit, but only when accompanied by their children or grandchildren.

Another reason why I like Roblox so much is that the stock price has something of a floor. The current market cap is only $20 billion. That price could draw the attention of other tech companies that have cash on their balance sheets and desire to make an acquisition.

Even without a takeover, Roblox has a future. His DAUs and work hours confirm this. The real question is whether the company can continue to grow – what I believe it can and will do. That’s why I think it’s a growth stock worth buying.

The company is disrupting the small business cloud

Will Healy (DigitalOcean): DigitalOcean offers cloud infrastructure services for small and medium-sized enterprises (SMEs) and is therefore a direct partner of companies that need cloud services such as e.g Amazon and Microsoft. Given DigitalOcean’s market cap of just over $2.5 billion, one might wonder how it competes with such tech giants.

However, the DigitalOcean community offers resources such as online tutorials and the ability to consult other DigitalOcean customers to resolve issues. This benefit is critical, as SMBs often have just one IT staff—if they can even afford to hire an IT professional. It also strengthens the company’s competitive advantage, since its competitors cannot replicate such a network quickly and profitably.

Additionally, DigitalOcean excels at offering “simple, predictable pricing” geared toward SMBs. Pricing is posted on their website, and customers can customize service levels to suit their needs. Although the number of customers spending more than $50 a month is up 50% year over year, most customers are spending less.

Even with this underperforming customer base, DigitalOcean’s third-quarter revenue grew 37% year over year from $152 million. It was also reported that net dollar lockup was 118%, meaning the average customer spent 18% more on services than last year. Such revenue growth puts DigitalOcean on track for approximately $575 million in 2022 revenue and positions the company to meet its goal of $1 billion in revenue by 2024.

But even that strong growth didn’t stop DigitalOcean stock from falling nearly 80% over the past year. Inflation and economic slowdown have hit SMEs hard, and as a loss-making company in a bear market, interest in the stock has plummeted.

In the earnings report for the second quarter, the publication of total customer numbers was discontinued for inexplicable reasons. That could mean it’s been losing customers over the past two quarters. The company said it had 623,000 customers at the end of the first quarter.

Still, potential buyers should like the fact that the price to sales (P/S) ratio of 5 is near record lows. The potential problems with customer growth could also prove to be temporary. As more SMBs turn to the cloud, the benefits should eventually accrue to DigitalOcean stock.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Jake Lerch has positions at Amazon and Roblox Corporation. Justin Pope has positions at Roku. Michael Healy has positions at DigitalOcean Holdings, Inc. and Roku. The Motley Fool has positions in and recommends Amazon, DigitalOcean Holdings, Inc., Meta Platforms, Inc., Microsoft, Roblox Corporation, and Roku. The Motley Fool has a disclosure policy.