Recession is likely next year, at least according to the bond market. But some S&P 500 companies will skate right through it, analysts say.
Ten S&P 500 companies, including casinos like Las Vegas Sands, cruise ship operators like Norwegian Cruise Line and Tesla, are expected to put up more than 35% revenue growth next year, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
Such strength will be the exception, not the rule, as the economy strains under rising interest rates. Analysts think S&P 500 companies' revenue as a group will only inch up 3.3% next year, says John Butters of FactSet. That's below the trailing 10-year average of 4.1% going back to 2012 and well below the 10% growth seen this year, he says. "It is also below the estimates of 4.7% on June 30 and 4.4% on Sept. 30, as analysts have lowered revenue estimates ... over the past few months."
But you can still find growth.
Brace For Recession
If there's a recession in 2023, it might be the most widely anticipated on in history. Most signs point that way.
Says who? The bond market. "The difference between two- and 10-year Treasurys yields (a measure of future recession risk) just keeps growing," said Nicholas Colas of DataTrek Research. "We are now well into 1981 territory." Another "canary in the coal mine?" Bank stocks are lagging the S&P 500 by nearly 6 percentage points this year, he said.
Lastly, financial models are starting to point toward recession. "The NY Fed Recession Probability model now puts 38% odds on a U.S. recession in the next 12 months. This understates the real probability which, based on 60 years of history, is now close to 100%," Colas said.
But a recession doesn't have to hit everyone. But it's smart to know where analysts think demand is robust enough to endure a slowdown.
Gambling On Strong Revenue
If you're looking for a type of S&P 500 company expected to dodge next year's slowdown, check out the craps table.
Las Vegas Sands, the operator of storied casinos like The Venetian in Las Vegas, is expected to put up revenue next year of $8.1 billion. That would be astounding growth of nearly 92% from 2022's expected revenue. That's better growth than of any S&P 500 company next year. And it's not all just about growth, but profit, too. The company is also expected to make an adjusted $1.04 a share next year. That would reverse a loss this year of $1.09 a share.
Keep in mind, though, investors are already piling in to get ahead of a strong 2023. Shares of Las Vegas Sands are up nearly 26% this year. Rival Wynn Resorts is also expected to boom next year, with revenue likely to rise more than 38% in 2023. And yet, that stock is down 0.1% this year.
Cruising To Growth In A Recession
And get this: three of the S&P 500 companies expected to grow the most next year all hail from the cruise industry.
Norwegian is leading the charge. Analysts think the cruise company's revenue will float more than 75% next year to $8.5 billion. And like many of the casinos, next year is supposed to be when the company finally shakes off its losses. Norwegian is expected to make an adjusted $1.17 a share in 2023, reversing a year-ago loss of $4.43 a share.
But it's not just Norwegian. Revenue at Carnival is seen jumping more than 70% to $21.4 billion next year. And analysts think Royal Caribbean Cruises' revenue will gain more than 43% to $12.7 billion. But investors won't believe it until they see it. Shares of Norwegian, Carnival and Royal Caribbean are down 26%, 56% and 27% this year, respectively.
Plugging Into Recession-Proof Growth
Energy, too, both clean and traditional are sources of growth.
Shares of natural gas producer EQT are up more than 64% this year on the back of strong energy prices. And next year, the company's top-line is seen soaring more than 76% to $10.9 billion.
But it's not just about traditional energy. Electric car maker Tesla, despite shares dropping 50% this year, is seen putting up impressive 39% revenue growth next year. And then there's Enphase Energy, one of the only stocks to soar in the past five years. The stock just this year is up 74%. Analysts think its revenue next year will hit $3.1 billion, up more than 36% from this year.
A recession might look likely next year. But that doesn't mean all S&P 500 companies will get dragged down.
Recession Beaters
S&P 500 companies expected to post 35%-plus revenue growth in 2023
| Company | Ticker | Expected revenue growth in 2023 | Stock year-to-date % ch. | Sector |
|---|---|---|---|---|
| Las Vegas Sands | 91.7% | 25.7% | Consumer Discretionary | |
| EQT | 76.6 | 63.5 | Energy | |
| Norwegian Cruise Line | 75.6 | -26.0 | Consumer Discretionary | |
| Carnival | 73.0 | -55.9 | Consumer Discretionary | |
| Cincinnati Financial | 58.9 | -7.0 | Financials | |
| Royal Caribbean Cruises | 43.2 | -26.9 | Consumer Discretionary | |
| Tesla | 39.9 | -49.2 | Consumer Discretionary | |
| Wynn Resorts | 38.5 | -0.1 | Consumer Discretionary | |
| Enphase Energy | 36.1 | 74.7 | Information Technology | |
| Albemarle | 35.2 | 8.3 | Materials |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
