Fears of a potential recession have overtaken the concerns about inflation recently. Investors are worried central bankers are raising interest rates too quickly, which is destroying demand and plunging us into an economic downturn.
These concerns are justified. Demand destruction could be the only tool central bankers have to tackle inflation right now. That’s bad news for most stocks. But some growth stocks are relatively insulated from this trend. These companies could see robust growth regardless of what lies ahead. Here’s a closer look at these outliers.
Growth stock #1
Healthcare is a defensive sector. Demand for medical attention isn’t related to economic cycles. That’s why WELL Health Technologies (TSX:WELL) could be an ideal growth stock for the current environment.
WELL Health stock has dipped along with the rest of the market. It’s down 64% from last year. However, underlying fundamentals have continued to improve throughout this period. The number of telehealth appointments booked on WELL Health’s apps has surged while the expansion in U.S. continues to add value.
Revenue in May 2022 reached a record high and was up 40% from the previous year. U.S.-based revenue was up 150% year over year. For 2022, the company expects total revenue of $525 million. Meanwhile, the company’s market value is $723 million. That’s a price-to-revenue ratio of just 1.38.
The stock is so cheap that management has implemented an automatic share-purchase plan (ASPP) to repurchase 2.5% of outstanding shares. That’s a green flag that should attract the attention of investors.
Healthtech could be a recession-resistant sector, which is why WELL Health deserves a spot on your watch list for the second half of 2022.
Growth stock #2
Constellation Software (TSX:CSU) is another growth stock that seems well positioned for the economic downturn.
Constellation is Canada’s largest enterprise software conglomerate. Over the past three decades, the company has accumulated over 300 small- and mid-sized niche software companies to expand its portfolio.
These acquisitions have helped the company expand free cash flows at a relentless pace. Over the past 10 years, free cash flow per share has grown at a compounded annual rate of 31%. Unsurprisingly, the stock is up 2,000% over the same period.
Roughly half of Constellation’s software subscription clients are government agencies. That means cash flows are relatively reliable and resistant to economic downturns. Meanwhile, Constellation has the opportunity to acquire more companies at cheaper valuations during recessions. In the first half of 2022, the company has already deployed more capital in acquisitions than it did throughout 2021.
These mergers should unlock value in a few years, which will eventually be reflected in the stock price. For now, Constellation is down 16% year to date. Investors looking for a long-term growth opportunity should keep an eye on this beaten-down growth stock.
