Tighter lending standards stemming from the banking crisis and the Fed’s interest rate hikes to bring inflation down will likely tip the economy into a recession later this year. Despite the uncertain macroeconomic conditions, investors may consider buying and holding growth stocks BorgWarner Inc. (BWA), AGCO Corporation (AGCO), and Barloworld Limited (BRRAY).
Before diving deeper into the fundamentals of these stocks, let me explain why the stock market is expected to remain under pressure.
March’s Consumer Price Index (CPI) data showed that inflation is on its downward path as prices rose 0.1% sequentially and 5% annually in March. However, the core consumer prices, which exclude food and energy items, rose 0.4% sequentially and 5.6% year-over-year. In addition, the U.S. economy added 236,000 jobs in March, indicating strong job growth.
Post the quarter-percentage-point interest rate increase last month, the benchmark federal funds rate is now between 4.75% and 5%, the highest level since September 2007. The Federal Reserve will likely proceed with another rate increase at the next month's policy meeting that would lift the federal funds rate above 5%.
Minutes from the Fed’s March meeting show that the staff believes there could be a mild recession this year. The meeting summary said, “Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years.”
Despite the worries of a recession, few growth stocks are expected to generate strong returns this year. Investors’ interest in growth stocks is evident from the Vanguard Growth ETF’s (VUG) 14.1% returns year-to-date.
To that end, it could be wise to invest in growth stocks BWA, AGCO, and BRRAY to generate significant returns in the long term.
BorgWarner Inc. (BWA)
BWA provides solutions for combustion, hybrid, and electric vehicles worldwide. The company operates through four segments: Air Management; E-Propulsion & Drivetrain; Fuel Injection; and Aftermarket.
On March 1, BWA announced the completion of its acquisition of Hubei Surpass Sun Electric's (SSE's) Electric Vehicle Charging Solution, Smart Grid, and Smart Energy businesses. The acquisition is vital for BWA’s Asian electrification business and is expected to complement the company's existing charging footprint in Europe and North America.
BWA’s revenue grew at a CAGR of 15.8% over the past three years. Its EBITDA grew at a CAGR of 10.9% over the past three years. Moreover, its net income grew at a CAGR of 8.2% during the same time frame.
BWA’s net sales increased 12.4% year-over-year to $4.11 billion for the fourth quarter that ended December 31, 2022. The company’s gross profit increased 33.3% year-over-year to $833 million. Its adjusted operating income rose 7.5% year-over-year to $428 million.
In addition, its adjusted net earnings increased 16.1% year-over-year to $296 million. Also, its adjusted EPS came in at $1.26, representing an increase of 18.9% over the year-ago period.
BWA’s EPS and revenue for the quarter that ended March 31, 2023, are expected to increase 6.1% and 7.4% year-over-year to $1.11 and $4.16 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 33% to close the last trading session at $48.35.
BWA’s POWR Ratings reflect its positive outlook. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #4 out of 60 stocks in the A-rated Auto Parts industry. In addition, it has an A grade for Growth and a B for Value, Momentum, and Quality. Click here to see the other ratings of BWA (Stability and Sentiment).
AGCO Corporation (AGCO)
AGCO manufactures and distributes agricultural equipment and related replacement parts globally. The company markets and sells its products under the Challenger, GSI, Fendt, Massey Ferguson, and Valtra brands through a network of independent dealers and distributors.
On April 24, AGCO announced that it had signed an agreement with Hexagon to expand its factory-fit and aftermarket guidance offering.
AGCO’s Fuse Go-to-Market director, Mark Theuerkauf, said, “We anticipate that this agreement will help to increase precision agriculture technology adoption in our growth markets by providing an easy-to-use-and price-competitive guidance solution for farmers in more regions.”
AGCO’s revenue grew at a CAGR of 11.9% over the past three years. Its EBITDA grew at a CAGR of 25.4% over the past three years. Moreover, its net income grew at a CAGR of 92.3% during the same time frame.
For the fourth quarter that ended December 31, 2022, AGCO’s revenue increased 23.6% year-over-year to $3.90 billion. Its gross profit increased 37.8% over the prior-year quarter to $940.60 billion. Its adjusted income from operations increased 71.9% year-over-year to $467.50 million.
In addition, its adjusted net income increased 44.5% year-over-year to $335.30 million. In addition, its adjusted EPS came in at $4.47, representing an increase of 45.1% year-over-year.
For the quarter that ended March 31, 2023, AGCO’s EPS and revenue are expected to increase 13.5% and 17.4% year-over-year to $2.71 and $3.15 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 22.3% to close the last trading session at $122.97.
AGCO’s POWR Ratings reflect solid prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and Value and a B for Momentum. It is ranked #2 out of 26 stocks in the Agriculture industry. To see the other ratings of AGCO for Stability, Sentiment, and Quality, click here.
Barloworld Limited (BRRAY)
Based in Sandton, South Africa, BRRAY operates as an industrial processing, distribution, and services company in Southern Africa, Australia, Russia, and Mongolia. The company offers industrial equipment and services comprising of earthmoving equipment, industrial services, and power systems.
BRRAY’s EBIT grew at a CAGR of 0.5% over the past three years. Its total assets grew at a CAGR of 4.7% over the past three years.
BRRAY’s revenue from continuing operations for the year that ended September 30, 2022, increased 15.4% year-over-year to R.39.38 billion ($2.15 billion). Its operating profit from core trading activities increased 12.7% year-over-year to R.3.65 billion ($199.74 million). The company’s total assets increased 3% year-over-year to R.54.41 billion ($2.98 billion).
Analysts expect BRRAY’s revenue for the fiscal year 2024 to increase 9.9% year-over-year to $2.26 billion. Over the past six months, the stock has declined 1.3% to close the last trading session at $4.79.
BRRAY’s POWR Ratings reflect a promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Momentum, and Quality. Within the B-rated Industrial – Services industry, it is ranked #6 out of 91 stocks. Click here to see the other ratings of BRRAY for Stability and Sentiment.
What To Do Next?
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BWA shares were trading at $48.42 per share on Wednesday morning, up $0.07 (+0.14%). Year-to-date, BWA has gained 20.71%, versus a 6.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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