It’s looking like things are going to get a tad ugly before we shut the door on 2023. There is still a chance that the Fed engineers a soft landing and pushes inflation back under 2%, but the odds are decreasing with every report I see in the economic news. Focus on winning stocks like Limbach Holdings (LMB) in this environment, advises Tim Melvin, editor of The M.V.P. Letter.
The jobs market has been a bright spot. The April report showed a gain of 253,000 jobs, more than expected by the always-accurate analyst estimates of Wall Street analysts and economists. On its face, this is a fantastic report; however, a deeper dive shows that beneath its surface, the report is “just okay.”
The previous two months were revised lower, so the three-month average job gain is 222,000. While that is better than the months right before the pandemic, it is indicative of an acceptable economy, not a robust one. The real problem is that all the jobs being created are in service-based industries. Services drive inflation, most of which is caused by service provider wage growth.
Overall, we must be patient and wait for our opportunity to develop. Looking at both the CBOE Volatility Index (VIX) and high-yield credit spreads, there is very little evidence of fear on the part of individual or institutional investors yet.
I am not sure what it will take for the markets to present the type of opportunity that Warren Buffett turned into massive profits, but the macroeconomic and geopolitical conditions would seem to provide plenty of potential seeds that could sprout into fear.
Meanwhile, LMB is a stock that remains attractive.
The company reported another blowout quarter, with gross profit growth of more than 40%. Earnings per share reversed from a loss of $1.50 a year ago to a gain of $2.70 per share. Free cash flow also went from a negative number to a positive sum. It was another monster positive earnings surprise for Limbach, as the results surpassed analyst expectations by 440%.
Limbach should continue to see strong results as tailwinds from industries like data centers, healthcare facilities, and life sciences buildings drive demand for its HVAC and building management products.
Recommended Action: Buy LMB.
