This week the IMF upgraded its global growth forecast thanks to the recent full reopening of the Chinese economy after three years of on and off again lockdowns. They now believe global growth will come in at 2.9% in 2023, up from 2.7% previously. The IMF has 3.1% growth penciled in for 2024 and believes the United States might still narrowly skirt a recession this year.
My view remains that recession sometime in 2023 is the most likely outcome for the economy as the aggressive monetary tightening by the Federal Reserve slowly grinds economic activity to stall speed.
Companies are certainly signaling that growth will be hard to come by this year as there has been a consistent parade of layoff announcements this year as firms are taking action to maintain margins in a slow/no growth environment. Yesterday, HubSpot (HUBS) announced it would reduce its workforce by 7% as did PayPal Holdings (PYPL) , and NetApp (NTAP) disclosed it is slashing its global employee count by 8%.
Growth stocks were shellacked in 2022 on higher rates and rising concerns around the global economy. The Nasdaq lost nearly a third of its value during the year and value was the clear winner in that matchup. Today, I am going to highlight two names that should see growth in 2023 despite a challenging economic backdrop and are reasonably valued even as the stocks have moved up nicely over the past month.
I built up a significant position in Tutor Perini (TPC) in the back half of 2022, mostly via covered call holdings. That patience has started to pay off here in 2023 as the stock is up some 20% for the year. 2022 was a tough one for this construction giant and its shareholders. Cost overruns and write-offs led the company to post a significant loss on the year.
However, the company should return to growth in FY2023, where the company should make at least a buck a share in profits. Tutor Perini earned nearly $1.80 a share in FY2021 before its issues last year.
As a large government contractor, the company should benefit from recent infrastructure legislation and massive funding for years to come as well. Tutor has a large order backlog and if you look beyond the write-offs in 2022, the company is producing record operating cash flow. The stock, even with the rally in the shares, sells for an enterprise value/revenue ratio of around .25.
Lantheus Holdings (LNTH) was also on the move in January with an approximate 13% gain for the month. However, the stock is still off by more than 25% from the highs it hit last September. Sales more than doubled in FY2022 thanks to the successful rollout of a new cancer imaging agent that has gained rapid acceptance in the marketplace. Thanks to the law of large numbers, sales growth should slow in FY2023 to the low to mid-teens. Given that, valuation looks more than reasonable at 15 times earnings.