3 Growth-Stock Picks to Buy in a Bear Market Before Rebound: Lindzon – Business Insider

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  • Technology stocks have gotten clobbered this year as the Federal Reserve has hiked interest rates dramatically.
  • Investors have been taking their cues from the Fed for months as they assess the path of financial tightening.
  • Howard Lindzon, the StockTwits cofounder who makes early-stage investments through his firm Social Leverage, shares three growth stocks he’s bullish on.

How low can growth stocks go? That’s a question Howard Lindzon, the managing partner of venture capital firm Social Leverage, has asked throughout the year, only to see more sell-offs.

Shares of technology companies, especially unprofitable ones, have been punished in 2022 as investors look to de-risk their portfolios in the face of rapidly rising interest rates. Some pundits have compared today’s market to the dot-com bubble of 2000, and Lindzon — who also cofounded the popular social-media platform StockTwits — sees similarities.

“I haven’t seen it look this bad since 2000,” Lindzon said of the technology sector in a recent interview with Insider.

Howard Lindzon of Social Leverage has seen several bull and bear markets.
Stephen McCarthy / Contributor Getty Images

Unlike in the 2008 financial crisis, tech stocks are the greatest casualty in markets during the “nasty rolling recession” that the US appears to be in the middle of, Lindzon said. But while growth-oriented tech names are out of favor right now, the venture capitalist said investors that are avoiding the sector and riding the energy sector’s wave will eventually pivot back to tech.

“Where do they always come back to? Growth,” Lindzon said. “So I think what I’ve been telling people is, be patient — for the last eight months, at least. Hide cash. Some markets are just very difficult, so higher cash and being really patient matters.”

A “cocktail” of concerns has caused tech stocks to sag

Of the many forces driving tech stocks lower, none is more prevalent than the Federal Reserve’s sizable interest-rate hikes, which it’s enacted throughout the year in order to fight rampant inflation. That caused a chain reaction that included the crumbling of high stock valuations, especially for high-growth names that led the market higher during its unprecedented bull market.

“Higher rates, strong dollar, de-globalization on top of high valuations and a Fed that doesn’t necessarily know what to do — is not a good cocktail,” Lindzon said.

Lindzon added: “It’s not good. But at the same time, this is what happens in a bear market.”

The future trajectory of stocks will depend heavily on the Fed’s rate-hike decision at its September 21 meeting. Investors will spend the next two weeks locked into every hint about whether the US central bank will continue to hammer inflation — and perhaps the economy — or ease up and risk persistent price surges.

Instead of trying to predict what will happen, Lindzon said he’s not trying to fight the Fed and will instead look for buying opportunities that often come in times of crisis.

“I’m not going to judge the Fed — you just have to follow the Fed,” Lindzon said. “And right now, the Fed is raising rates, so I don’t think you can read too much into it. The average investor should just be conservative until there’s a change in stance or until prices get so ridiculous that even without lowering rates and rates just being sideways, people feel comfortable on stocks.”

How to invest in tech: 3 stocks to buy

At Social Leverage, Lindzon evaluates startups, talks with their founders, and writes checks ranging between $1 million and $10 million to those he and his colleagues deem as deserving.

Since early 2021, the venture capitalist said it’s been increasingly hard to find a good deal. Lindzon said his firm went from making a deal about once a month to once every three months.

“For the last 15 to 18 months, we’ve been at pretty laughable valuations,” Lindzon said. “So luckily for us, just based on valuations, we were kind of sitting out. We couldn’t get our heads around investing in startups at a $15 million to $30 million pre-money valuation.”

But Lindzon said he’s starting to get “super optimistic” as previously “silly” valuations start to fall back to earth — and not just about private companies that are seeking seed money.

There are three beaten-down, multi-billion-dollar technology companies that Lindzon said he still loves and wants to buy shares of on the way back up. Each has lost over half its value this year.

“You’ve got to own these companies when they’re hated,” Lindzon said.

Along with each name is its ticker, market capitalization, year-to-date return as of September 6, and commentary from Lindzon.

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