The reality is that no one really knows how 2023 will pan out.
Both consumers and businesses are definitely suffering from inflation in costs and ten consecutive months of interest rate rises.
Just how badly will the economy be hurt as the year plays out?
With so much uncertainty hanging over our heads, the team at Firetrail Australian High Conviction Fund is buying into S&P/ASX 200 Index (ASX: XJO) shares that can provide some confidence.
'Strong earnings growth with relatively high certainty'
In a memo to clients, the fund revealed that it recently bought Medibank Private Ltd (ASX: MPL) and Woolworths Group Ltd (ASX: WOW).
"We added Medibank Private to the portfolio during the quarter," the memo read.
"We believe the stock offers strong earnings growth with relatively high certainty compared to the rest of the market."
Of course, the private health insurer is infamous for having the personal data of its customers stolen in October, including some medical records.
That understandably saw the share price fall off a cliff. Amazingly, much of the drop has been recovered since, but Firetrail analysts reckon it's still great value.
"The sell off that followed the cyber incident last year provided a compelling opportunity to enter the stock at attractive valuation levels," read the memo.
"The stock still sits 15% below where it was trading prior to the cyber-attack despite an improved earnings outlook."
Tailwinds galore; earnings forecast ahead of consensus
The Firetrail team noted that after three months of negative customer growth, Medibank was back in the black in February to the tune of 0.2%.
"Prior to the cyber-attack Medibank was growing policyholder numbers at ~3% per annum."
The analysts admitted cost-of-living pressures will have a negative impact on the private health industry. But Medibank is fortunate to have a number of tailwinds that can counter:
- Low claims activity
- Lengthy public hospital waiting lists not improving
- Consumers more health-aware after COVID-19 pandemic
- 2023 will be the first time in more than 20 years that premium increases are below wage inflation
The Firetrail team is convinced Medibank can grow its earnings in excess of expectations.
"Our earnings forecasts for Medibank are 7% to 15% ahead of consensus and we forecast an earnings per share growth rate of 10% over FY23-25," read the memo.
"On a multiple of 16x FY24 earnings per share, we believe Medibank is one of the cheapest defensives in the ASX 200."
