With 2022 now in the rearview, investors shift their focus to 2023 and the year ahead. The economic outlook for the new year remains muddied, as Wall Street looks for clues on inflation, the Federal Reserve’s rate hikes, unemployment, GDP, and more.
The good news? Major U.S. banks largely are forecasting a very mild recession or no slowdown at all in 2023. Growth is estimated to slow across the board, but managing to divert a major economic downturn is ultimately the preferred outcome.
Goldman Sachs (NYSE: GS) has a slightly more optimistic outlook than the rest of the Street. U.S. GDP for 2023 is estimated to come in at 1%, which is better than the average Wall Street consensus of only a 0.4% gain for the year. Goldman sees GDP picking back up in 2024 with a growth of 1.6%, compared to average estimates of 1.4% growth in 2024.
JP Morgan (NYSE: JPM) maintains a similar stance that estimates a chance for a mild U.S. recession. However, the major investment bank has stated that “both stocks and bonds have pre-empted the macro troubles set to unfold in 2023 and look increasingly attractive,” and the fact that the “broad-based sell-off in equity markets has left some stocks with strong earnings potential trading at very low valuations.”
However, BlackRock (NYSE: BLK), the world’s largest asset management firm, does not see much good news in 2023. The firm has stated its belief that “taming inflation would take a deep recession.” Furthermore, the markets are entering new territory, where the options are either getting inflation back down to 2% by crushing demand to meet what the economy can comfortably produce right now. The alternative is learning to live with inflation, says BlackRock.
Despite the different outlooks from Wall Street’s elite, investors should look for beaten-down opportunities or companies that are set up to continue thriving in the current uncertain economic environment. With that said, here are three stocks to keep an eye on for 2023:
1. Asure Software (NASDAQ: ASUR)
Asure Software is a provider of cloud-based human capital management (HCM) solutions in the United States. Asure’s target customers are small-to-medium-sized businesses (SMBs), which utilize the HCM service provider’s suite of services and products to help build more productive teams by staying compliant with employment laws and freeing up resources to help grow their business.
The HCM provider’s products and services cover everything from payroll & tax automation to integrations with Equifax (NYSE: EFX), expansive retirement benefits, and more. Furthermore, Asure has worked diligently to develop new services to assist in emerging areas that concern SMBs. One example is the company’s work with its CPA partners to help streamline the Employee Retention Tax Credit (ERTC) filings. This has helped Asure provide solutions to SMB CPA partners and back office workers to streamline to ERTC filing process and focus on more important tasks instead.
Asure Software had a big 2022, as the labor markets saw the increased competition and the continued adoption of hybrid work. Based on the current economic outlooks provided by major U.S. banks and economic experts, SMBs will largely be facing a very similar environment in 2023 as they did last year. This means cost-cutting, streamlining efforts, and attracting top-tier workers will again be the main focus for the year ahead for these SMBs. All of which can be achieved through Asure’s suite of products and services.
Analysts covering Asure continue to hold bullish outlooks for the company. Six analysts are covering the stock as of January 2023. All six rate the company a “buy” and maintain a price target of $11.20. In fact, analyst Jeff Van Rhee of Craig-Hallum just reiterated his “buy” rating and $14.00 price target on January 3, 2023. Eric Martinuzzi of Lake Street also recently reiterated his “buy” rating for Asure with a $12.00 stock price target.
Analysts have been increasingly bullish on Asure as the economic environment continues to support the company’s strong growth. This can be determined by reviewing Asure’s recent financial results and its consecutive streak of beating estimates. Over the past nine quarterly periods dating back to Q3 2020, Asure has successfully met or exceeded revenue and EBITDA guidance. Only in Q1 2021 did EBITDA come in slightly lower for Asure than expected.
This shows that Asure is a strong performer in the context of financial results. Despite its strong earnings track record during a time of great economic uncertainty and volatility, Asure remains largely under the radar. However, after a very strong finish to 2022 and expanding analyst coverage for the HCM services provider, Asure’s days of flying under the radar may be coming to an end.
2. PayPal (NASDAQ: PYPL)
2022 was a brutal year for larger-cap technology stocks, including PayPal Holdings, Inc. (NASDAQ: PYPL), which has returned over -60% in the past twelve months. However, analysts and market participants are beginning to warm back up to PayPal and other fintech names that largely were thrown out with the bath water.
Mizuho analyst Dan Dolev recently reiterated his “buy” rating on PayPal stock with a $105.00 price target. Mr. Dolev acknowledges Apple, Inc.’s (NASDAQ: AAPL) Apple Pay is a top competitor to PayPal. In 2022, PayPal lost meaningful market share to Apple Pay, as it struggles to compete in mobile and desktop checkouts.
However, Dolev remains bullish on PayPal after analyzing web traffic from some of its largest e-commerce checkout partners, such as Etsy, Inc. (NASDAQ: ETSY), Nike, Inc. (NYSE: NKE) and Home Depot, Inc. (NYSE: HD). The analysis showed that after a decline in 2021 that lasted through the first half of 2022, PayPal’s outgoing traffic from this group of partnered merchants has been stable in recent months.
Aside from stabilizing traffic from its major e-commerce partners, PayPal looks increasingly enticing especially when reviewing free cash flow. PayPal stock may still be overvalued if you are using metrics such as price to book or price to sales, and price-earnings growth (PEG). However, the company has a price-to-free-cash-flow reading of 14.89 and a forward price-to-earnings ratio of 15.64. The forward P/E estimates earnings will rebound in 2023 and give PayPal a more attractive valuation when looking at forward P/E than the overall markets.
3. Destination XL Group (NASDAQ: DXLG)
Destination XL Group, Inc. (NASDAQ: DXLG) is a specialty retailer that focuses on big and tall men’s clothing and shoes across North America. As of January 2022, Destination XL had an operational footprint spanning 220 DXL stores, 16 DXL outlet stores, 35 Casual Male XL stores, and 19 Casual Male XL outlet locations. The company’s e-commerce business is also an area of significance for the retailer.
Within the context of this article, Destination XL is a more defensive play if economic activity continues to get worse than expected. Seen as largely recession-resistant, Destination XL sets itself apart from Big Box and department retailers through its exclusive focus on clothing and accessories for big and tall men. Despite growing competition from the likes of Walmart (NYSE: WMT), Destination XL offers a larger selection of higher-quality clothing and accessories than can be found at a typical department store.
According to Allied Market Research, the plus-size clothing market was valued at $480 billion in 2019 and is estimated to reach a value of $696.7 billion by 2027. This represents a compound annual growth rate (CAGR) of 5.9% between 2021 and 2027.
Putting the statistics further into context, a “tall” customer would be an individual that has a height of around 6 feet tall and a weight around 200 pounds. For “big” customers, this is defined as an individual that is 6’2″ or shorter and has a waist size that is the same or larger than your chest.
According to Squarespace and Healthline, men over six feet tall makeup roughly 14.5% of the total male population in the United States. The average weight for American males between the ages of 40 and 59 is just over 200 pounds. This shows that a sizable portion of U.S. men fit the requirements of “big and tall” clothing.
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