A bear market is an ideal time to go bottom-fishing and buy quality growth stocks at a discount. The last 15 months have been brutal for growth investors, as rising interest rates and inflation have dragged valuations significantly lower.
While sentiment remains bearish, investors can identify growth stocks that are well poised to deliver outsized gains when markets recover. Historically, growth stocks have generated exponential gains in a bull run and created massive investor wealth.
Here are two such stocks that can turn a $10,000 investment into a large fortune over the next 10 years.
Down 71% from all-time highs, Chewy (NYSE:CHWY) is valued at a market cap of US$14.7 billion. An online pet food retailer, Chewy is part of a rapidly expanding addressable market that is fairly recession resistant.
Pet owners have increased spending on food products in recent years, and this trend is likely to continue in the future as well. Moreover, pet product platforms enjoy repeat purchases, allowing Chewy to lower customer acquisition costs over time.
Chewy has already increased sales from US$4.84 billion in fiscal 2020 to US$10.1 billion in fiscal 2023 (ended in January). Analysts now forecast sales to touch US$11.2 billion in fiscal 2024 and US$12.5 billion in fiscal 2025.
Chewy has successfully developed a subscription-based business model that ensures steady cash flows. In fiscal 2020, subscription or autoship customers accounted for 68.4% of sales, and this figure has increased to almost 75% in the last 12 months.
A subscription-based model allows Chewy to increase customer engagement and retention rates, which eventually translates to higher revenue spending on its platform.
The pet products market in the U.S. rose to US$123 billion in 2021, providing Chewy with enough room to expand its top line.
Analysts tracking the tech stock remain bullish and expect shares to rise by 30% in the next 12 months.
One of the top-performing TSX stocks, Dollarama (TSX:DOL) has returned a whopping 2,450% to shareholders since its initial public offering in late 2009. The discount retailer is part of a defensive sector but has continued to grow revenue and earnings at an enviable rate.
Dollarama operates a chain of dollar stores in Canada, where it offers merchandise and consumable products. Over the years, it has increased its presence in Canada by opening new stores and building an online platform.
Inflation touched multi-decade highs last June and is likely to remain elevated in the near term. But this environment should act as a tailwind for Dollarama, as analysts expect the company to increase sales to $5.44 billion in fiscal 2024 (ending in January).
Despite its market-thumping gains, DOL stock is priced at 25 times forward earnings, which is quite reasonable. In fact, Bay Street expects Dollarama to increase adjusted earnings by 19% annually in the next five years.
Dollarama also pays investors annual dividends of $0.22 per share, indicating a forward yield of 0.3% and a payout ratio of less than 10%. So, the retail giant can easily increase its dividend payouts in the next few years. Since March 2013, its dividends have increased by 11.5% annually.