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Billionaire David Rubenstein Says Recession Is Likely, but Stays Heavily Invested in These 2 Stocks

The voices issuing warnings of an impending recession have been growing louder. The feeling on Wall Street is that one is all but inevitable right now. One prominent name to wade in on the matter is billionaire David Rubenstein.

The Carlyle Group co-founder believes that due to the current economic environment of “jacked up” interest rates, gross domestic product growth is set to decelerate, bringing in to play a recession.

Not only that, but he also thinks the Fed is unlikely to put the brakes on its hawkish monetary policy until the unemployment rate reaches around 6%, the threshold from which inflation is likely to cool down.

As a co-founder of a private equity firm with almost $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; at present, two stocks account for 76% of his firm’s portfolio. With the prospect of a recession high on his probability list, the billionaire evidently thinks these stocks are ones to own right now.

Rubenstein is not the only one showing confidence in these names; according to the TipRanks database, Wall Street’s analysts rate both as ‘Buys.’ Let’s take a closer look.

ZoomInfo Technologies (ZI)

Accounting for the biggest holding in his portfolio (39%), and worth almost $1.6 billion, the first Rubenstein-backed stock we’ll look at is ZoomInfo, or as it is otherwise known as – The Other Zoom.

This B2B data and software provider gathers information about companies and professionals and uses artificial intelligence (AI) to provide salespeople a better understanding of their market and prospective clients. In the past, sales teams have depended on instincts and know-how to locate and acquire new clients. However, ZoomInfo helps them make the most of data and technology to contact the relevant customers at the right moment. And this can help companies get an edge over their competitors.

ZoomInfo’s latest financial statement, for Q3, was a strong one. Revenue climbed by 45.5% year-over-year to $287.6 million, beating the Street’s forecast by $9.12 million. Likewise for adj. EPS, which almost doubled from the year-ago quarter from $0.13 to $0.24 whilst also coming in ahead of the $0.20 consensus estimate.

But investors were expecting more out of the outlook and the company also said it anticipates dollar-based net retention to drop in 2022 on account of longer sales cycles and its sales force being strained. As such, the company’s outlook for Q4 and 2023 is a cautious one.

Such talk has contributed to the stock’s weakness and the shares are down 55% year-to-date.

However, Wells Fargo analyst Michael Turrin sees plenty to like here. He writes: “ZI has a best-of-breed operating model, with 30%+ growth and 40%+ uFCF margins. While the company has pulled back from its peak margin level in FY20 and is experiencing ST headwinds to uFCF conversion/margins this year as a result of favorable customer payment terms, it remains confident in re-expanding margins in the ST as a step function, and gradually over time. It also expects margins to expand at a faster clip should the macro cause growth to decelerate faster than anticipated. All of which is to suggest ZI remains well positioned to sustain both strong top-line growth and best-in-class margins that should continue to expand.”

Turrin doesn’t stop with his upbeat commentary. He rates ZI shares a Buy, with a $60 price target that implies a one-year upside potential of 109%. (To watch Turrin’s track record, click here)

Overall, this name receives strong support on Wall Street. Barring one skeptic, all 18 other analyst reviews are positive, making the consensus view a Strong Buy. The forecast calls for 12-month upside of ~66%, considering the average target stands at $47.56. (See ZI stock forecast on TipRanks)

QuidelOrtho Corporation (QDEL)

Rubenstein’s next big holding is QuidelOrtho, which takes second place in his portfolio (37%) with a value just north of $1 billion.

The company, which is the result of Quidel acquiring Ortho Clinical Diagnostics for $6 billion earlier this year, is a leading developer and manufacturer of diagnostic testing solutions. These offerings span across the diagnostic spectrum – from infectious diseases to women’s health to cardiometabolic and gastrointestinal diseases. One claim to fame for Quidel is that its Covid-19 antigen test was the first to be granted Emergency Use Authorization (EUA) by the FDA.

Quidel reported Q3 financials at the start of November. The top-line showed $783.8 million, amounting to a 54% increase on the same period a year ago. Net income fell quite dramatically, however, and resulted in adj. EPS contracting by 54% to $1.85. That said, both results beat Street 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 top-line growth and adjusted EBITDA margins, thereby displeasing investors.

However, Raymond James analyst Andrew Cooper is sanguine about the downward revisions. “We view 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 err towards optimistic goals pre-deal close to one that errs on the side of conservatism moving forward,” the analyst explained. “The tone and commentary from the rest of the meeting were largely positive and supportive of our view and the valuation remains attractive even if out year numbers come down somewhat.”

“With new achievable, if not beatable, bars in place, not to mention what we think will be a strong 4Q report and nothing at the analyst day that implies a need to lower our 2023 expectations, we remain steadfast in our Strong Buy rating,” Cooper went on to add.

That rating is backed by a $136 price target, which suggests the shares will climb 66% higher over the one-year timeframe. (To watch 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, making room for returns of 38% in the months ahead. (See QuidelOrtho stock forecast on TipRanks)

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