It's often seen in share markets that a group of shares that are completely out of favour in one year will outperform the next.
After all, simple mean reversion would tell you that a beaten up stock will have more upside as opposed to another that has already been well celebrated by investors.
That's the attitude Switzer Financial Group director Paul Rickard is taking into the new year with growth shares.
"What we've seen in the last six to nine months is that the market's punished growth stocks with interest rates going up," he said on a Switzer TV Investing video.
"To get away from the defensive end of the market, you have to have the view that inflation has peaked and therefore the next big movement in interest rates is down."
Rickard said the November consumer price index figures for the US, which will be revealed mid-December, could act as confirmation of that thesis. Although even if it doesn't happen next month, the signal will eventually occur down the track.
Considering this, all three of Rickard's top stock tips for 2023 are in the growth style:
Share price 'breakthrough' coming
Biotechnology company CSL Limited (ASX: CSL) is an oldie but a goodie for Rickard.
It's been something of a sleeping giant in recent years as the share price has merely moved sideways, never getting close to the pre-COVID peak of around $336.
But Rickard noted that it has tried to burst through the $300 barrier about four times this year.
"I think we're going to see that breakthrough at some stage," he said.
"It's actually up year to date, which might surprise a number of people."
Rickard thought the takeover of Swiss company Vifor was positive, as it operates in a valuable part of the health industry fighting kidney disease.
"Not a huge contribution to profit this year, about US$300 million," he said.
"But CSL had the same [situation] when it acquired Sequiris, which was the influenza vaccines business. That took a few years to work really well for CSL."
'Back a winner'
Investment bank Macquarie Group Ltd (ASX: MQG) has seen its share price take a 16% hit year to date, which Rickard attributes to its exposure to the wider corporate world.
"As interest rates go up, we see the business cycle slow down a bit and investors get nervous. We've seen the slowdown in private equity and fewer IPOs," he said.
"It becomes harder to sell assets because there's just not as much interest."
But for Rickard, anyone looking with a long-term horizon would have to back the Holey Dollar.
"You back a winner. It's in the top two or three Australian companies. 60% of its revenues are now [from] offshore," he said.
"It has a mix of what it calls market-facing and non-market-facing businesses."
The other reason Rickard is bullish on Macquarie is it has a similar trait to CSL.
"It has a history of positive surprises. It under-promises — gets cautious, gets conservative in its outlook statements — then likes to over-deliver."
'Big opportunities' in the US and the UK
The third pick for Rickard is the cloud accounting software maker Xero Limited (ASX: XRO).
The Xero share price has unfortunately more than halved in 2022.
"Its next leg of growth is in the US and the UK, and that's struggled a little bit," said Rickard.
"Not that it's not growing, but it's not growing at the rate the market wants it to grow."
Rickard believes that Xero can turn the situation around and conquer those expansion markets for two reasons
"We know their software is pretty good, it's very sticky, people love it," he said.
"Surprisingly, the market, in terms of provision of small business software, in the UK and the US is actually behind Australia. Despite some global giants in that marketplace, there's big opportunities."
Despite a new chief executive due to take the reins in 2023, Rickard pointed to the technology company's growth history.
"I think it's going to get there," he said.
"You back something that, again, has been pretty successful and it's demonstrated some great metrics."
