Heading into next year, there are some businesses that look like they should perform better than they have in 2022. Two of them are Novo Nordisk (NVO 2.70%) and Southwest Airlines (LUV -0.91%). Since October, shares of both companies are up over 20% (the S&P 500 has risen 10% over this period) as investors have begun buying up these stocks. And with promising growth prospects for 2023, they could be even hotter buys next year.
1. Novo Nordisk
It hasn't been a bad year for Danish pharmaceutical giant Novo Nordisk, and its shares have risen 15% in 2022. But things could go even better for the business next year. That's because its promising weight-loss drug Wegovy has seen strong demand -- and if not for supply issues, its sales could have been much greater this year. Through the first nine months of 2022, Wegovy's sales have totaled 3.7 billion Danish Krone ($524 million), which is more than six times what it generated a year ago.
However, analysts expected the company to generate more than $2 billion over the past two years from the treatment. CEO Lars Fruergaard Jørgensen admits the company underestimated demand and Novo has since increased capacity, which should enable it to fulfill all of its orders in 2023.
In total, the company's year-to-date revenue of 128.9 billion Danish Krone ($18 billion) is up 16% with constant exchange rates, and all of Novo's segments, including diabetes care and rare diseases, have generated positive year-over-year growth. The company anticipates that for the entire year its revenue will be up between 14% and 17% when factoring out the impact of foreign exchange.
Although the healthcare stock trades at close to 40 times earnings, which certainly isn't cheap, with more growth ahead for Novo likely on the way for the business, its numbers should look much stronger. That's why it could still be a solid buy right now. More impressive numbers from Wegovy next year could ensure Novo's stock continues rising in 2023.
2. Southwest Airlines
The airline industry has been struggling as a result of the pandemic, but things are starting to turn around and demand has been recovering. The International Air Transportation Association says it expects the industry to return to profitability next year. Although it won't be back to pre-pandemic levels, it is projecting the industry to report a profit of $4.7 billion (versus $26.4 billion in 2019).
Low-cost carrier Southwest Airlines is one name that could be among the biggest winners in a return to normal for the industry. The company is so optimistic that it even reinstated its dividend (which it had to suspend due to the pandemic), which now yields 1.9% -- slightly higher than the S&P 500 average of 1.7%. CEO Bob Jordan says the move, "reflects the strong return in demand for air travel and the company's solid operating and financial results since March 2022."
Through the first nine months of this year Southwest's operating revenue has totaled $17.6 billion, which is an increase of 64% from a year ago. Unfortunately, operating income is down 8% to $1.4 billion as rising costs, particularly fuel, have led to a surge in operating expenses. But with the price of oil falling recently, that could lead to better results next year. Lower commodity prices combined with strong demand should make for a strong 2023 for Southwest.
At 29 times earnings, the stock looks expensive -- but on a forward basis (which looks at analyst expectations for the next year), its price-to-earnings multiple is just 11. Down 11% year to date, Southwest is a solid buy on the dip right now as next year the stock should perform much better.
