Although the Nasdaq Composite was down 33% in 2022 and the S&P 500 dropped about 19% last year, not all stocks were in negative territory. In fact, these two stocks -- both of them financial stocks -- not only beat the market, but blew it out of the water.
Here's why these two under-the-radar stocks also have bright futures.
1. Blucora
Blucora (AVTA) may not be a name that comes to mind when thinking of the best-performing stocks of 2022, but investors who did know about it last year saw an eye-popping 47% return in the worst year for stocks since 2008.
While that type of return may be hard to match in 2023, Blucora, a wealth management and financial planning firm, is poised for another good year in 2023.
The first thing to know about Blucora is that it will be rebranded as Avantax sometime in the first quarter. That's because the company sold its underperforming tax accounting software business TaxAct in December for $720 million. Now it will become a pure play wealth manager and financial planning business, taking on the name of its growing Avantax Wealth Management and Avantax Planning Partners arms.
The company will return $400 million to $450 million of the proceeds from the TaxAct sale to shareholders through buybacks during 2023, starting with a modified Dutch auction tender offer this quarter.
The sale will also help streamline operations and costs, allowing the company to invest in its core businesses. Avantax has been able to expand in a competitive field by offering tax-focused solutions for its broker-dealer and financial advisor clients. Many of its clients are tax professionals and accountants who offer wealth management or financial planning on the side, so the goal is to incorporate tax planning into those two areas.
The company expects to see significant earnings growth in 2023 and 8.5% to 11% annual organic revenue growth over the medium term. Despite its surging stock price, it still has a low forward price-to-earnings ratio of 9.5. And it stands to benefit in a high interest rate environment from an increase in cash sweep revenue, which have significantly higher interest rates, offsetting lower equity prices if the market declines.
2. Greene County Bancorp
Greene County Bancorp (GCBC 0.51%) is a community bank that serves the Hudson Valley in New York State. But this small bank put up big numbers in 2022, and its stock rose 56%.
Greene County Bancorp, the holding company for the Bank of Greene County, has been a consistent performer for years, with average annual earnings increasing of about 17% during the past 10 years through the third quarter of 2022. Investment analyst Piper Sandler named Greene County Bancorp to its Sm-All Stars Class of 2022. It has earned this honor from Piper Sandler for six straight years -- the only bank to do so.
"To earn Sm-All Star status, companies need to have a market cap below $2.5 billion, and clear numerous hurdles related to growth, profitability, credit quality, and capital strength,'' Greene County Bancorp President and Chief Executive Officer Don Gibson said. "Sandler's objective is to identify the top performing small-cap banks and thrifts in the country."
Last year, the bank benefited from an increase in interest income from higher interest rates, as well as higher average loan balances. It also has strong credit quality, with $499 million in reserves in the third quarter, while most banks were setting aside bigger provision for loan losses. In addition, both net charge-offs and nonperforming loans were down in the third quarter, year over year.
The bank's efficiency sets it apart, and its return on equity of 19% was well above the industry average of 13% in Q3. The bank also had an operating margin of 51% and a profit margin of 42%, executing on years of consistent cost containment and earnings growth.
This year will bring challenges, with the possibility of a recession, but the company is well positioned to weather a potential economic slowdown while still benefiting from higher interest rates. Longer-term, it should be even stronger coming out on the other side, with still-high interest rates to buoy revenue.
Greene County Bancorp also has a solid quarterly dividend of $0.14 per share, which it has raised for the past nine years in a row.
These two under-the-radar stocks both quietly outperformed the market in 2022, and their futures remain bright.
