Billionaire David Rubenstein says a recession is likely, but remains heavily invested in these 2 stocks

The voices warning of an impending recession are getting louder. The feeling on Wall Street is that one is almost inevitable right now. One prominent name venturing out on the issue is billionaire David Rubenstein.

The co-founder of the Carlyle Group believes that due to the current economic climate of “pushed up” interest rates, gross domestic product growth will slow, bringing with it a recession.

Not only that, but he thinks the Fed is unlikely to slacken its aggressive monetary policy until the unemployment rate hits around 6%, the threshold from which inflation is likely to cool.

As the co-founder of a private equity firm with nearly $400 billion in assets under management, Rubenstein knows a thing or two about the markets and stock picking. And picky he certainly seems to be; currently, two stocks account for 76% of his company’s portfolio. With the prospect of a recession high on his probability list, the billionaire apparently thinks these stocks are owned right now.

Rubenstein is not alone in showing confidence in these names; according to the TipRanks database, Wall Street analysts rate both as “Buys.” Let’s take a closer look at that.

ZoomInfo Technologies (ZI)

The largest holding in his portfolio (39%), and worth nearly $1.6 billion, is the first Rubenstein-backed stock we’ll look at, ZoomInfo, or as it’s also known as The Other Zoom.

This B2B data and software provider collects information about companies and professionals and uses artificial intelligence (AI) to give sellers a better understanding of their market and potential customers. In the past, sales teams depended on instinct and know-how to locate and acquire new customers. However, ZoomInfo helps them to make the most of data and technology to contact the relevant customers at the right time. And this can help companies gain an edge over their competitors.

ZoomInfo’s latest financial statement, for the third quarter, was strong. Revenue rose 45.5% year over year to $287.6 million, beating Street’s forecast of $9.12 million. Likewise for adj. EPS, which nearly doubled from the same quarter last year from $0.13 to $0.24, while also surpassing the consensus estimate of $0.20.

But investors expected more from the outlook, and the company also said it expects dollar-based net retention to fall in 2022 due to longer sales cycles and a tense sales team. As such, the company’s Q4 and 2023 outlook is cautious.

Such talk has contributed to the stock’s weakness, and shares are down 55% since the start of the year.

However, Wells Fargo analyst Michael Turrin sees plenty to like here. He writes, “ZI has a best-of-breed business model, with 30%+ growth and 40%+ uFCF margins. While the company has retreated from its peak margin level in FY20 and is experiencing ST headwinds for uFCF conversion/margins this year due to favorable customer payment terms, confidence in expanding margins again in the ST remains as an incremental feature . and gradually over time. It also expects margins to grow faster if the macro causes growth to slow faster than expected. All of this indicates that ZI remains well positioned to maintain both strong revenue growth and best-in-class margins, which should continue to grow.”

Turrin does not stop his cheerful commentary. He rates ZI stock a buy, with a price target of $60, implying 109% upside potential over a year. (To view Turrin’s track record, click here)

In general, this name gets a lot of support on Wall Street. All but one skeptic, all 18 other analyst reviews are positive, making the consensus a strong buy. The forecast calls for an increase of ~66% over 12 months as the average target is $47.56. (See ZI Stock Forecast on TipRanks)

QuidelOrtho Corporation (QDEL)

Rubenstein’s next major holding is QuidelOrtho, which ranks second in its portfolio (37%) with a value of just over $1 billion.

The company, which is a result of Quidel’s $6 billion acquisition of Ortho Clinical Diagnostics earlier this year, is a leading developer and manufacturer of diagnostic testing solutions. This offering spans the entire diagnostic spectrum – from infectious diseases to women’s health to cardiometabolic and gastrointestinal disorders. A claim to fame for Quidel is that its Covid-19 antigen test was the first to receive Emergency Use Authorization (EUA) from the FDA.

Quidel reported third quarter financials in early November. Revenue showed $783.8 million, up 54% from the same period a year ago. However, net income dropped quite drastically and resulted in adj. EPS shrinks 54% to $1.85. That said, both results exceeded Street’s expectations.

More recently, the stock went through a bit of a sell-off following the company’s investor day, where it lowered its three-year financial outlook for both revenue growth and adjusted EBITDA margins, drawing investor dismay.

However, Raymond James analyst Andrew Cooper is optimistic about the downward revisions. “We see the changes more as an appropriate move to better align the outlook with expectations, as well as a shift from a guidance philosophy that seemed to be erring to optimistic goals that are close to pre-deal from one that is mistaken on the side of conservatism moving forward,” the analyst explains. “The tone and commentary of the rest of the meeting was mostly positive and supportive of our view and valuation remains attractive even as full-year numbers fall somewhat.”

“With new attainable, if not beatable, bars, not to mention what we believe will be a strong 4Q report and nothing on Analyst Day to imply we need to lower our expectations for 2023, we remain steadfast in our Strong Buy rating,” Cooper continued.

That rating is supported by a $136 price target, which suggests the stock will rise 66% over the course of a year. (To view Cooper’s track record, click here)

As for the rest of the Street, with an additional 2 Buys and Holds (i.e. Neutrals) each, the stock claims a Moderate Buy Consensus rating. The average price target currently stands at $113, allowing for returns of 38% in the coming months. (See QuidelOrtho Stock Forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the recommended analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.

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