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3 Beaten Down Finance Stocks Poised for a Turnaround in 2023
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From the beginning of this year, the Federal Reserve has been raising interest rates to counter inflationary woes. Driven by higher rates, the performance of finance stocks, typically banks (which thrive in a rising rate environment), has improved.
However, while the broader economy has gradually started to overcome the pandemic-induced uncertainties, new challenges have been cropping up. For the past few months, supply-chain headwinds have been hampering operations across all industries.
Market watchers are currently pessimistic about the stock market, which is expected to witness a slowdown in 2023 amid the impending prospects of a recession.
While the Federal Reserve’s bid to contain the red-hot inflation by aggressively raising interest rates has positively impacted top-line growth of finance companies, the move has raised the possibility of a downturn next year. The move is expected to put pressure on consumers’ wallets and potentially trigger a recession in 2023.
The continuing Russia-Ukraine war also does not look promising as it is indicative of a further rise in commodity prices worldwide with an enduring impact.
Thus, market watchers are wary of these factors leading the equity markets to face another downturn.
Amid the uncertain macroeconomic business environment, investors can turn their attention to a few finance stocks that have been holding steady. These stocks are fundamentally sound and are currently trading below their actual potential. XP Inc. (XP - Free Report) , Blackstone Secured Lending Fund (BXSL - Free Report) and Sixth Street Specialty Lending, Inc. (TSLX - Free Report) are among the beaten-down stocks in the finance space that are poised for a turnaround in 2023.
Year to date, the aforementioned stocks have underperformed the S&P 500 index and the broader Zacks Finance sector, which have declined 17% and 13.4%, respectively.
Image Source: Zacks Investment Research
3 Promising Picks
The first company to consider is XP. Based in Sao Paulo, Brazil, XP is a leading, technology-driven platform and a trusted provider of low-fee financial products and services. Driven by net inflows, the company’s total assets under custody registered year-over-year growth of 17.1% over the nine months ended Sep 30, 2022, which is expected to aid top-line growth amid the uncertain market conditions.
So far this year, shares of this Zacks Ranked #2 (Buy) company have lost 48.9%. However, for 2023, XP’s earnings are projected to grow 18.2% from that reported in the prior-year period. Similarly, the company’s sales are expected to witness growth of 21.9% in 2023. Decent growth expectations will likely drive the stock in 2023.
Another stock to consider is Blackstone Secured Lending, which is a specialty finance company that invests primarily in the debt of private U.S. companies. It is a business development company and a Delaware statutory trust structured as an externally managed, non-diversified, closed-end investment fund. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BXSL has been experiencing a significant increase in its earnings power from higher interest rates, which has been benefiting its portfolio yields. This makes the stock a promising pick right now. So far this year, shares of the company have lost 32%. The Zacks Consensus Estimate for the company’s 2023 earnings suggests year-over-year growth of 22.4%. Its sales growth rate for 2023 is 22.2%.
The last company on our radar is Sixth Street Specialty Lending. This specialty finance company is focused on lending to middle-market companies. TSLX generates current income through direct originations of senior secured loans and mezzanine loans, as well as investments in corporate bonds and equity securities.
Amid the persistent macro headwinds, the company’s senior floating rate-focused portfolio seems attractive. Notably, 90.4% of its portfolio constitutes first-lien debt investments, while 98.9% is floating-rate debt investments. Amid the rising interest environment, this is expected to boost the company’s top line.
Shares of the Zacks Ranked #2 company have lost 24.4% year to date. For 2023, TSLX’s earnings are expected to increase 13.1% year over year, while sales are projected to grow 30.2%.
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3 Beaten Down Finance Stocks Poised for a Turnaround in 2023
From the beginning of this year, the Federal Reserve has been raising interest rates to counter inflationary woes. Driven by higher rates, the performance of finance stocks, typically banks (which thrive in a rising rate environment), has improved.
However, while the broader economy has gradually started to overcome the pandemic-induced uncertainties, new challenges have been cropping up. For the past few months, supply-chain headwinds have been hampering operations across all industries.
Market watchers are currently pessimistic about the stock market, which is expected to witness a slowdown in 2023 amid the impending prospects of a recession.
While the Federal Reserve’s bid to contain the red-hot inflation by aggressively raising interest rates has positively impacted top-line growth of finance companies, the move has raised the possibility of a downturn next year. The move is expected to put pressure on consumers’ wallets and potentially trigger a recession in 2023.
The continuing Russia-Ukraine war also does not look promising as it is indicative of a further rise in commodity prices worldwide with an enduring impact.
Thus, market watchers are wary of these factors leading the equity markets to face another downturn.
Amid the uncertain macroeconomic business environment, investors can turn their attention to a few finance stocks that have been holding steady. These stocks are fundamentally sound and are currently trading below their actual potential. XP Inc. (XP - Free Report) , Blackstone Secured Lending Fund (BXSL - Free Report) and Sixth Street Specialty Lending, Inc. (TSLX - Free Report) are among the beaten-down stocks in the finance space that are poised for a turnaround in 2023.
Year to date, the aforementioned stocks have underperformed the S&P 500 index and the broader Zacks Finance sector, which have declined 17% and 13.4%, respectively.
Image Source: Zacks Investment Research
3 Promising Picks
The first company to consider is XP. Based in Sao Paulo, Brazil, XP is a leading, technology-driven platform and a trusted provider of low-fee financial products and services. Driven by net inflows, the company’s total assets under custody registered year-over-year growth of 17.1% over the nine months ended Sep 30, 2022, which is expected to aid top-line growth amid the uncertain market conditions.
So far this year, shares of this Zacks Ranked #2 (Buy) company have lost 48.9%. However, for 2023, XP’s earnings are projected to grow 18.2% from that reported in the prior-year period. Similarly, the company’s sales are expected to witness growth of 21.9% in 2023. Decent growth expectations will likely drive the stock in 2023.
Another stock to consider is Blackstone Secured Lending, which is a specialty finance company that invests primarily in the debt of private U.S. companies. It is a business development company and a Delaware statutory trust structured as an externally managed, non-diversified, closed-end investment fund. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BXSL has been experiencing a significant increase in its earnings power from higher interest rates, which has been benefiting its portfolio yields. This makes the stock a promising pick right now. So far this year, shares of the company have lost 32%. The Zacks Consensus Estimate for the company’s 2023 earnings suggests year-over-year growth of 22.4%. Its sales growth rate for 2023 is 22.2%.
The last company on our radar is Sixth Street Specialty Lending. This specialty finance company is focused on lending to middle-market companies. TSLX generates current income through direct originations of senior secured loans and mezzanine loans, as well as investments in corporate bonds and equity securities.
Amid the persistent macro headwinds, the company’s senior floating rate-focused portfolio seems attractive. Notably, 90.4% of its portfolio constitutes first-lien debt investments, while 98.9% is floating-rate debt investments. Amid the rising interest environment, this is expected to boost the company’s top line.
Shares of the Zacks Ranked #2 company have lost 24.4% year to date. For 2023, TSLX’s earnings are expected to increase 13.1% year over year, while sales are projected to grow 30.2%.