The Nasdaq-100 index hosts 100 of the largest technology stocks listed on the Nasdaq exchange. The index is up 19.7% to start 2023, which is a great result so far, but it remains down 21% from its all-time high. That means it's still firmly in bear market territory. But historical data suggests it might not be there for much longer, and the commencement of a new bull market could very well happen this year.
If it does, now might be a good time for investors to prepare their portfolios. That could mean buying new stocks, but also selling some that perhaps aren't set up for success in the long run. With that in mind, here are two growth stocks to buy now, and one to sell.
The first stock to buy: SentinelOne
Cybersecurity has become a critical expense for most companies, especially those heavily reliant on cloud computing technology. SentinelOne (NYSE: S) is one of the fastest-growing players in the industry -- it more than doubled its revenue in fiscal 2023 (ended Jan. 31), yet its stock remains 80% below its all-time high.
That might spell opportunity for investors. SentinelOne has built an all-in-one solution called Singularity, which allows organizations to observe their entire cybersecurity stack on one pane of glass. It reduces communication breakdowns across departments and, combined with the company's artificial intelligence (AI) technology, results in faster, automated incident response times.
Singularity protects across the cloud, the endpoint, and the identity sphere, and it focuses on automated protection because it believes AI can make better decisions than humans. The strategy appears to be resonating with SentinelOne's 10,000 customers, because its net revenue retention rate jumped to 130% in the fiscal 2023 fourth quarter, up from 125% in the year-ago period. It means existing customers are spending 30% more with the company than they were at the same time in fiscal 2022.
SentinelOne has grown its annual revenue by 817% in just three years, from $46 million in fiscal 2020 to $422 million in fiscal 2023. But it has barely scratched the surface of what it believes to be a $100 billion market opportunity. Given the steep discount in its stock price right now, it might be a great time for investors to buy ahead of the next bull market.
The second stock to buy: Snowflake
Cloud computing has unlocked unprecedented scale for businesses of all sizes. It allows them to access powerful digital infrastructure cheaply and build new online sales channels to serve a global customer base. But it has one byproduct that many organizations struggle to manage: data. Each customer interaction, for example, produces important information, but extracting its value can be challenging.
Snowflake's (NYSE: SNOW) Data Cloud allows companies to aggregate all of their data in one place, offering them a powerful analytics engine so they can draw maximum value from the information they generate. It's particularly useful for large organizations using multiple providers of cloud services, which create data silos and hamper visibility.
Snowflake is also working to disrupt the application development industry with its Snowpark tool, which brings programmers together into one platform, no matter which language they're coding in. It ensures data is stored securely in one place, improves collaboration, and has the potential to speed up project development.
Snowflake's fiscal 2023 (ended Jan. 31) revenue came in at $1.9 billion, up a robust 70% year over year. But investors were concerned by its guidance, which suggests growth could slow to 40% in fiscal 2024. On the other hand, despite most of the tech sector slashing head count, the company hired 1,892 employees in fiscal 2023, which suggests any slowdown in growth might only be temporary.
With Snowflake stock down 65% from its all-time high, this could be a great buying opportunity, especially for the long term.
The stock to sell: DoorDash
In the same way that investors should be on the lookout for quality stocks to buy ahead of the next bull market, they can also look to trim exposure to stocks that might not perform going forward. DoorDash (NYSE: DASH) could be one of them. The company operates in the food delivery industry, which is flooded with competition, and the effects are showing up in its financial results.
The food delivery industry has low barriers to entry, so it's relatively inexpensive for new competitors to enter the space. As a result, lowering prices is one of the few levers DoorDash can pull to maintain its 65% U.S. market share.
The good news is that DoorDash managed to accelerate its revenue growth to 40% year over year in the fourth quarter of 2022, thanks in part to its acquisition of retail delivery platform Wolt. But the company continues to struggle with steep bottom-line losses, which are showing no signs of turning around.
DoorDash's gross profit margin fell to 42% in Q4, from 49% a year ago, which leaves the company with less money to put toward operating expenses. As a result, its net losses steadily worsened in each quarter of 2022, blowing out to $642 million in Q4. That was partially impacted by a $312 million one-off impairment charge, but even after discounting that, its Q4 result was still the worst of the year.
Consumers are grappling with a tough economic environment, and they're likely to remain cost-conscious as long as inflation and interest rates remain elevated. Since delivery is typically the most expensive option when it comes to ordering takeout, DoorDash might find itself with falling demand to accompany its bottom-line struggles. As a result, this might be a stock to avoid even if a new bull market kicks off in 2023.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoorDash and Snowflake. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.