Dear Financial Voice Reader,
Which might be the “Winning Stocks of 2022”. I thought I would do a roundup, not of my view, but the views of ‘experts’ and save you hours as loyal readers of Asian Voice.
As 2021 draws to a close, it's time to consider what next year will bring for the markets. Let's look at what the banks, analysts, financial gurus and talking heads have to say about equities.
Value Stocks
Worries about inflation will spread into 2022. Tech stocks, for so long the stock market darlings, are sensitive to inflation because it hits the long-term earnings baked into their valuations. John Thorndike of GMO suggests that value stocks across all sectors are the best picks.
Thorndike cites cyclical industries like Financials, Energy, Materials, housing, and consumer brands as strong stocks because they have excellent pricing power when inflation causes rising costs and demand.
Indeed, if investors exit Tech stocks, they could return to Value stocks en masse. Lisa Shalett of Morgan Stanley suggests Industrials, financials, and real estate stocks are great reopening picks.
Another well-regarded investor citing Financials and Industrials as top picks for next year is JP Morgan's Phil Camporeale. He also adds Tech and Energy as big performers next year.
Indeed, growth, inflation, and the Fed are the main themes that will affect market prices next year. For many, 2022 could be difficult for the Tech sector. However, two familiar faces should perform well.
Amazon is well-placed to take a larger share of the eCommerce market, even if consumers switch to cheaper goods as a result of rampant inflation, according to Matt Benkendorf at Vontobel. Jensen's Eric Schoenstein is similarly bullish about Microsoft, thanks to their 31% increase in revenues and robust cloud-computing platform.
Growth Stocks
Supply chain issues and Omicron travel bans suggest that we're not out of the COVID woods just yet. However, several growth stocks could take advantage of newfound optimism as the economy reopens.
Trupanion, the medical insurance for pets provider’s AGR rate of 23%, looks attractive. Similarly, the Florida-based homebuilding company, TopBuild Corp., generated $6 million in revenue last year and has big home building plans for 2022.
UK Stocks
Brexit and other assorted worries have hurt investment in UK stocks over recent years. However, Liberum Capital Ltd believes this could be about to change. They suggest that UK company earnings could grow by more than 40% next year, offering investors a rare mix of value and growth.
Consumer Staples
After a volatile few months in the markets, some more conservative stocks are beginning to look appealing. Investment has been rotating into the Consumer Staples sector of late due to these equities' stable earnings and dividends. Three such stocks look like solid picks for 2020.
McDonalds faced their share of hardship during the pandemic, but they have adapted and recovered well. Additionally, their strong global presence and continued demand make them a safe pick.
Pepsi looks an excellent defensive pick too. Several successful brands operate under Pepsi, such as Mountain Dew, Doritos, and Gatorade. These staples have the sort of price elasticity that will survive inflation. Throw in a Q3 that finished with $6.5 billion in cash, and they look like a solid pick.
Finally, Constellation Brands are worth a look due to their grip on the beer, wine, and spirits market. Additionally, their stake in Canopy Growth Corporation, a Canadian cannabis manufacturer, could provide future growth.
Pent-Up Demand
Extensive stimulus checks left a lot of Americans with extra cash in their pocket. Additionally, the pandemic has hit supply chains, hitting components for many manufacturing businesses.
This scenario has hurt car sales significantly, but according to David Dineen of Spouting Rock Asset Management, this trend is about to be reversed. If the new car market explodes into action, Dineen suggests AutoNation Inc., Asbury Automotive Inc. and Sonic Automotive Inc will see an increase in P/E ratios and share prices.
Restaurants
Dan Chung at Fred Alger Management has some exciting insights on how the pandemic forced a mass adoption of technology. He cited restaurants as one industry that has adapted to a post covid world by moving into home deliveries.
Even as we reopen, many restaurants see their delivery numbers stay strong, perhaps signifying a long-term shift in consumer preference. This could spell good news for stocks like GrubHub, DoorDash, and UberEats owners Uber.
COVID-19
Of course, no piece about equities in 2022 would be complete without considering the effect of new strains of COVID-19. Most analysts aren't too concerned about Omicron, but as Romain Boscher at Fidelity International warns, any setbacks and closures could drag on economic activity.
Summary
Most US banks suggest that the market will continue its upward trajectory next year. BMO and Wells Fargo indicate that the S&P 500 could hit heights of around 5,300. At the same time, only Morgan Stanley (4400) and Bank of America (4,600) suggest slight pullbacks.
Whoever is correct, the rapid gains of 2020-21 seem unlikely. Instead, investors should look to take advantage of Growth and Value stocks, or even ETFs, while keeping an eye on Consumer Staples.
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