Best Stocks For 2022

As experts considered the best stocks to buy for 2022, they surely were looking over their shoulders. Unforeseeable events have recently made a mockery of strategists’ carefully considered forecasts. COVID in 2020 and supply-chain chaos in 2021 are but two of the latest reminders of that fact of investing life. 

On the one hand, the consensus view entering 2022 was for the global economic recovery to accelerate through this year. That naturally prompted plenty of strategists to pluck their top stock picks from cyclical sectors and recovery-sensitive industries.

On the other hand, economic forecasts are hardly gospel – and the first three months of 2022 put truth behind that saying. 

After making new record highs to start the year, the S&P 500 went on to suffer its worst January since 2009, but the selling wasn’t over. Speculation that Russia was preparing to invade Ukraine turned into a full-scale attack by late February, sending broader markets tumbling and commodity stocks soaring – all while lighting a fire under already sizzling levels of inflation. To slow the rate of price increases, the Federal Reserve has all but guaranteed it will launch an aggressive tightening campaign after kicking off its rate-hike cycle in March with a 25-basis-point increase. (A basis point is one-one hundredth of a percentage point.)

Further stoking the volatility are China’s efforts to combat surging COVID-19 cases through widespread lockdowns, raising fears of slower crude demand and creating more uncertainty around already tight supply chains.

While many economists lowered their gross domestic product (GDP) outlooks in reaction to these macro factors, there are glimmers of hope. Kiplinger economists believe inflation likely peaked in March and will begin to ease soon, though still ending the year at a lofty 5.5%. Plus, many pandemic-weary Americans appear ready to open their wallets and hit the road this summer – good news for both travel shares and hotel stocks.

When it came to picking the best stocks to buy for 2022, the experts were bullish … but also realistic. After all, stocks – even the best of them – never go up in a straight line. 

“Historically, a difficult start hasn’t necessarily foretold an ugly outcome to the year,” says Tony DeSpirito, CIO of BlackRock’s U.S. Fundamental Active Equities. “We see both a short- and longer-term opportunity taking shape.” And the elevated uncertainty and volatility facing markets “highlights the importance of building resilience into portfolios. We believe this is best achieved through diversification and a focus on quality – particularly stocks of companies with strong balance sheets and healthy free cash flow characteristics.”

We at Kiplinger believe the most prudent approach is to plan for a range of outcomes. So, with that in mind, here are the 22 best stocks to buy for 2022. Several of these top stocks are set to outperform amid a continued or accelerating economic recovery both at home and abroad. Others are more defensively positioned – built to grow should we enjoy smoother waters going forward in 2022, but also able to withstand additional macro-related disruptions. Other picks are contrarian plays; that is, names that were pummeled in either in 2021 or at the start of 2022 but could see a big return to favor in the months.

Walt Disney

Someone holding a phone showing the Disney+ app

Getty ImagesAdvertisement

  • Industry: Entertainment
  • Market value: $238.2 billion
  • Dividend yield: N/A

If there were ever a company that has proven its ability to adapt in a hurry, it would be Walt Disney (DIS,$130.84). The pandemic easily could have been Disney’s undoing. Its theme parks were closed or had limited capacity for months. Its movie business was dead on arrival. And even its ESPN sports programming business was upended by the canceling or curtailment of most professional sports for months.

And yet, “the old saying that ‘luck favors the prepared’ can be applied to Disney’s November 2019 launch of the Disney+ video service,” says Argus Research analyst Joseph Bonner, who rates DIS shares at Buy. Suddenly, tens of millions of bored, homebound people had the itch (and the time) to stream hours of Disney, Marvel and Star Wars content. 

Disney+ was an instant hit and absolutely crushed expectations, sending Disney’s shares sharply higher in 2020. However, DIS shares came back down to earth in 2021 and are off about 31% from their 52-week highs. 

But here’s the thing: Nothing has changed. Disney+ is still emerging as the strongest competitor to Netflix (NFLX) and boasts a truly unrivaled catalog of content it’s assembled over the decades. Disney’s movie business is back, as evidenced by the flurry of Marvel superhero movies planned. And the theme parks … did you really think they’d stay down long?

“We expect EPS to double in FY22 as the company recovers from the pandemic, with more normal though still strong 17% growth in FY23,” Bonner says.

At today’s prices, the communication stock trades at a slight discount to where it did immediately before the pandemic struck. But Disney’s empire has only grown since then. That, and a share-price lull in recent months, has DIS poised to be one of the best stocks to buy for 2022.

Uber Technologies

The Uber app is shown on a phone

Getty ImagesAdvertisement

  • Industry: Application software
  • Market value: $62.5 billion
  • Dividend yield: N/A

The Uber Technologies (UBER, $31.99) ride-sharing platform operates in 63 countries and 750 markets, connecting riders with drivers. Uber Eats triangulates customers, restaurants and drivers. The company also has an emerging freight business. 

Uber reached an important milestone in the third quarter of 2021, turning a profit (before interest, taxes, depreciation and amortization expenses) for the first time. 

The company that pioneered “mobility as a service” is a top internet stock pick at BofA Global Research, especially as urban centers reopen post-pandemic.

Even though earnings per share remain likely to be negative in 2022, BofA analysts, citing the company’s improved financial position, an increasing supply of drivers and market share gains, put a Buy rating on the stock. They also the stock could trade at $55 over the next 12 months – a 72% gain from current prices. That very likely would be enough to put it among 2022’s best stocks.

LHC Group

A nurse helps an elderly woman at an LHC Group facility

Getty

  • Industry: Medical care facilities
  • Market value: $5.1 billion
  • Dividend yield: N/A

A few months ago, Kiplinger’s Personal Finance columnist James A. Glassman recommended AB Small Cap Growth (QUASX): a fund that has notched a sensational 29.8% annualized return over the past five years. 

Now, he’s tapping QUASX for one of his best stocks to buy for 2022.

AB Small Cap Growth has been adding to holdings of Louisiana-based LHC Group (LHCG, $167.35), a provider of post-acute care, including home health and hospice services, in more than 700 locations. 

As the population ages, healthcare is a growth industry. And the stock started the year well priced after setbacks from hurricanes and because healthcare workers were forced to quarantine due to COVID-19. 

Ultimately, LHC Group was a solid bet … albeit one that investors likely can’t squeeze for any more gains now. That’s because UnitedHealth Group (UNH) announced in late March that it would buy the company for $5.4 billion in a deal expected to close later this year. As a result, LHCG stock should effectively be locked into a 20%-plus 2022 return until its shares are taken off the market.

IAC/InterActiveCorp

Concept art of a person browsing the internet on their phone

Getty Images

  • Industry: Internet content and information
  • Market value: $9.0 billion
  • Dividend yield: N/A

IAC/InterActiveCorp’s (IAC, $99.72) business is acquiring other businesses, improving their online operations, then spinning them off. Dating website Match.com and the video-sharing platform Vimeo are two recent rehab projects. The strategy generates huge amounts of cash intermittently, which the company pours into new ventures, but earnings can be lumpy. 

IAC’s late-October agreement to buy Meredith, the publishing company, might provide steadier recurring revenues as soon as 2022. “That’s a cash cow,” says David Marcus of Evermore Global Advisors. 

InterActiveCorp’s shares are down about 30% over the past six months. But Marcus still sees value because he says the sum of the parts is worth more than the current price of IAC stock.

DXC Technology

Socially distanced workers using laptops in a modern office lounge

Getty Images

  • Industry: Information technology services
  • Market value: $7.5 billion
  • Dividend yield: N/A

Dan Abramowitz, of Hillson Financial Management in Rockville, Maryland, is Glassman’s go-to expert in smaller companies.

His choice for 2021 was IEC Electronics, which was purchased by Creation Technologies in October for 53% more than the stock’s price when Glassman put it on the list, noting, “IEC is also a potential takeover target.”

For the best stocks to buy for 2022, Dan recommends DXC Technology (DXC, $30.70): a midsize in­formation technology company based in the suburbs of Washington, D.C. 

It is in the midst of a turnaround, Dan writes, “yet we are still in the early innings here.” Profits are improving, but the tech stock “is valued at under 10 times current fiscal year earnings (ahead of the start of 2022).”

Alibaba Group

An Alipay building. Alipay is part of Alibaba.

Getty Images

  • Industry: Internet retail
  • Market value: $268.1 billion
  • Dividend yield: N/A

A Chinese crackdown on big tech companies has weighed on shares of this e-commerce giant. China slapped a record $2.75 billion fine on Alibaba Group (BABA, $99.75) after an anti-monopoly probe last spring. All told, shares lost more than 60% between their October 2020 peak and the end of 2021.

Some analysts, even bullish ones, have trimmed sales and earnings expectations given sluggish economic and e-commerce conditions in China. 

That said, GoodHaven Capital Management portfolio manager Larry Pitkowsky, who likes a bargain with good growth prospects, bought shares in 2021 with expectations that BABA might be among the best stocks to buy for 2022.

Alibaba is the leading e-commerce company in China. Growth going forward might be less robust, but shares are cheap and trade at 11.6 times earnings estimates for 2022 – a 54% discount to its five-term average forward price-earnings ratio of 25.1. 

Littelfuse

Car fuses that may have been produced by Littelfuse

Getty Images

  • Industry: Electronic components
  • Market value: $5.7 billion
  • Dividend yield: 0.9%

The more technology pervades our life, the more Littelfuse (LFUS, $229.80) stands to gain. The firm designs and makes fuses and circuits – small but necessary components – for consumer electronics, cars and industrial equipment. 

Cars these days come with heated seats, power steering, lane change assistance and a heated steering wheel, among an increasing list of other things. Each feature requires its own fuse and circuit. Plus, Littelfuse dominates both the electronics and auto markets. 

The stock is off 27% in 2022, but Robert W. Baird Equity Research analyst Luke Junk still sees upside for shares, especially when auto production returns to normal and supply-chain bottlenecks clear.

“We see outperformance based on a mix of cyclical, secular, and company specific positives, with the Electronics business well positioned on a secular basis, likely acceleration with supply chain easing in Transportation (plus EV tailwinds), longer-term opportunities in Industrial, and tailwinds from already-completed M&A,” he says.

Charles Schwab

Two women walking by a Charles Schwab sign

Getty Images

  • Industry: Capital markets
  • Market value: $151.8 billion
  • Dividend yield: 1.0%

There’s little in financial services that Charles Schwab (SCHW, $80.07) doesn’t do. It’s a brokerage firm, a money manager, corporate retirement plan administrator and a bank. And it has been gobbling up assets under management (AUM) with new accounts and acquisitions. Its TD Ameritrade acquisition pushed total AUM to $7.4 trillion.

Rising interest rates should be icing on the cake in 2022. Every 0.25-percentage-point improvement in rates means another $750 million to $950 million in earnings, or about 30 to 38 cents per share, says portfolio manager Andy Adams at Mairs & Power Growth Fund (MPGFX). 

Wall Street analysts project that annual earnings will climb 26% in 2022, and even more next year. Just note that unlike some of 2022’s other top stock picks, Schwab is not exactly cheap. At $80, SCHW trades at nearly 21 times year-ahead earnings. 

AmerisourceBergen

Pharmaceutical supplies like those provided by AmerisourceBergen

Getty ImagesAdvertisementhttps://667df984b8a5bb4e0acf2e0aa142fd1e.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html

  • Industry: Medical distribution
  • Market value: $34.0 billion
  • Dividend yield: 1.1%

AmerisourceBergen (ABC, $162.62) distributes pharmaceutical products in the U.S. and internationally. Customers include retail and mail-order pharmacies, hospital networks, outpatient facilities, long-term care facilities and veterinarian practices. 

Six of the 14 firms who cover the stock recommend it, with CFRA particularly bullish, rating the shares a Strong Buy. Analyst Garrett Nelson says aging baby boomers, rapid biologic drug development and strong pet ownership trends are driving demand for the company’s drugs.

Nelson said in 2021 that the stock could trade at $140 over the next 12 months – a target that assumed a conservative price-to-earnings (P/E) ratio of just over 12, which would be a steep discount to the stock’s 10-year average P/E of 15. ABC sliced through that level in late February and has yet to look back. Shares are now trading above CFRA’s new price target of $160, suggesting another upward revision could be in store.

Freeport-McMoRan

A copper mine underneath a clear sky

Getty Images

  • Industry: Copper mining
  • Market value: $69.8 billion
  • Dividend yield: 1.3%

Fidelity Advisor Growth Opportunities Fund (FAGAX) is red-hot, ranking in the top 3% of funds in its category for five-year returns as of the end of 2021. The problem is that it carries a whopping 1.82% expense ratio and is sold mostly through advisers. 

Still, you can scan its port­folio for ideas. 

Most of the fund’s holdings are tech stocks, but the only new purchase for 2021 among its top 25 holdings was Freeport-McMoRan (FCX, $48.00), the minerals (copper, gold, silver) and oil and gas producer. 

The stock climbed 61% in 2021 and is up another 15% in 2022. But its P/E ratio, based on analysts’ consensus projections for this year, remains a reasonable 14.0. That, combined with an influx of Washington spending via the $1.2 trillion Infrastructure Investment and Jobs Act, could put FCX among the best stocks for 2022.

Bank of America

A Bank of America branch location

Getty ImagesAdvertisementhttps://667df984b8a5bb4e0acf2e0aa142fd1e.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html

  • Industry: Diversified banks
  • Market value: $315.9 billion
  • Dividend yield: 2.1%

The assets of Berkshire Hathaway (BRK.B), Warren Buffett’s holding company, have become more and more diversified over the years. At last report, the company owned 40 publicly traded stocks. 

Berkshire Hathaway’s largest holding by far is Apple (AAPL), at about 46% of the equity portfolio. Guess what’s second? Bank of America (BAC, $39.17), at roughly 13%.

Glassman says he is a longtime fan and shareholder of BofA as well. Financial stocks in general could be among the best stocks to buy for 2022 given rising interest rates. BAC, which trades at just 12 times next year’s earnings estimates despite a 60% rally over the past 24 months, looks especially good.

Culled from kiplinger.com by Anne Kates Smith, Charles Lewis Sizemore

Leave a Reply

Your email address will not be published. Required fields are marked *