A brutal year has brought some attractive deals to the surface.
The two major asset classes most sought after by retail investors, stocks and bonds, have each fared terribly in 2022. Bonds, often used as a hedge against stock market declines, have plunged as the Federal Reserve aggressively hikes interest rates into what experts predict is a likely recession. Stocks, also hit by higher rates, have receded into the first non-COVID-induced bear market since the 2008-2009 financial crisis. The good news? Investors are stockpiling capital, with 6.3% of their portfolios allocated to cash, the highest since April 2001. With so much money on the sidelines and markets anticipating rates to finally peak in the first half of 2023, here are 10 of the best stocks to buy in the final innings of 2022.
EOG Resources Inc. (ticker: EOG)
The best-performing stock on this list, EOG is a U.S.-based oil and natural gas producer. One notable area that’s been immune to the relentless plunge in asset prices has been commodities, and EOG and the energy sector as a whole have benefited enormously from the rally in crude oil and natural gas prices. On a total return basis, which includes dividends, EOG stock is up 57.5% in 2022 through Oct. 20. Trading at less than 8 times forward earnings, EOG is still reasonably valued following its run-up. Sure, 2022 is a boom year, with revenue expected to jump 41%, but 2023 hardly looks bleak, with analysts seeing revenue growth of 9.6%. Stubbornly high inflation will only serve as a boon to EOG, which also pays a sustainable 2.3% dividend on top of a cheap valuation and favorable macroeconomic conditions.
Grupo Aeroportuario del Sureste SAB de CV (ASR)
Often, some of the best ideas can be found off the beaten path — and that’s precisely where the $6.7 billion Mexico-based airport operator Grupo Aeroportuario del Sureste can be found. Holding up far better than the rest of the market — ASR is actually up 8.4% in 2022 on a total return basis — the business has posted a string of robust results this year driven by steadily increasing travel demand. The stock offers a bit of geographic diversification for U.S.-heavy investors, with its largest airports in Cancun, Mexico; San Juan, Puerto Rico; and Medellin, Colombia. Traffic in those regions is booming: Compared to September 2019, September 2022 traffic surged 30.3% in Mexico, advanced 10% in Puerto Rico and rose 34.8% in Colombia. Income investors will also find its 3.6% dividend appealing. At just 15 times earnings, there’s more room for ASR to soar alongside its traffic.
Visa Inc. (V)
A resurgence in global travel demand is also a rising tide that lifts a business like Visa. The credit card giant earns disproportionately more per swipe on cross-border transactions than domestic ones. Cross-border volume rose 40% year over year in the fiscal third quarter. Despite suspending service in Russia and a strengthening U.S. dollar that created some global headwinds, the surge in cross-border volume helped revenue march 19% higher in the quarter. At 27 times earnings, Visa may not seem like a steal, but that’s actually not a lofty valuation for Visa historically, which tends to command a premium due to its status as a nearly insurmountable payments network encompassing more than 80 million merchant locations across the globe.
Microsoft Corp. (MSFT)
One of only three publicly traded companies worth at least $1 trillion, Microsoft is an international tech giant and the largest software company in the world. Consumers are intimately familiar with many of its top products, such as its Windows operating system, Microsoft Office suite of productivity software and even LinkedIn, which it acquired in 2016. Behind the scenes, its Azure cloud services segment is a big driver of growth, with revenue advancing 40% in 2022’s fiscal fourth quarter — a period in which overall company revenue rose just 12%. Microsoft has a decades-long track record of entrenched software products, and 23 times earnings isn’t a bad price to pay for a dominant company that analysts see growing at a double-digit pace for years to come.
Yet another trillion-dollar Big Tech name on the list of the best stocks to buy for 2022 is Alphabet, the parent company of Google and its dominant search engine. Soaring interest rates have caused an indiscriminate sell-off in tech stocks, more or less regardless of their staying power and prospects. With GOOGL stock down 30.1% year to date through Oct. 20, investors have a rare opportunity to own Alphabet for less than 17 times forward earnings. After a 20-for-1 stock split in July, shares are also more accessible to small-time retail investors, trading for around $100 a pop instead of the $2,000 to $3,000 a share the company once commanded.
Lowe’s Cos. Inc. (LOW)
Of course, it’s not just tech stocks that have suffered from the Fed’s obstinate determination to hike interest rates. The housing market, too, has cooled as a direct result of easy money policies coming to an end, and corollaries of the real estate market like home improvement retail chains have felt the pinch. Given that backdrop, plus the fact that booming 2021 demand provides tough year-over-year comparisons, Lowe’s as a business has performed admirably this year. Net earnings remained the same in the most-recent quarter as they were the year before, while earnings per share managed to advance 9.9%, aided by stock buybacks that reduced the share count. At 12 times forward earnings, Lowe’s looks like a solid long-term stock to buy, with a flood of millennials in line to become first-time homeowners when the evasive nectar of affordability returns to markets.
Medifast Inc. (MED)
While many of the other stocks on this list are major international concerns or household names, the same can’t be said for Medifast. The $1.3 billion Medifast holds a number of superlatives among the 10 best stocks to buy: It’s both the smallest company referenced and the one paying the highest dividend, with a yield of 5.9%. For the uninitiated, Medifast is a weight loss management and multilevel-marketing company with tens of thousands of salespeople, known as coaches, selling its meal plans and products. Some might find the business boring or uninspiring, but long-term income investors and value stock geeks will have their mouths watering considering the juicy dividend and MED’s forward price-earnings ratio of 8.4.
ASML Holding NV (ASML)
A monopoly is an enormously powerful market force, as the famous board game will quickly teach you. Although various other top stocks on this list approximate monopolies — Alphabet and Microsoft both enjoy dominant market shares and “sticky” technologies that have endured for decades — ASML has a pure monopoly. The Dutch semiconductor equipment manufacturer is the world’s sole producer of extreme ultraviolet, or EUV, lithography machines. These enormous products use advanced technology to etch tiny patterns on wafers that go into semiconductors. Although shares are down 45% in 2022 through Oct. 20, ASML just reported a strong quarter in which earnings per share came in at $4.32, clobbering the $3.75 consensus estimate. Shares rose more than 6% on the news and with net bookings growth of 44% last quarter, the future of the business looks bright — regardless of what the stock’s year-to-date decline might imply.
Meta Platforms Inc. (META)
There’s no sense in mincing words: It’s been an abysmal year for Meta Platforms, the social media giant formerly known as Facebook. The stock is off 61% in 2022 through Oct. 20, as a trifecta of forces combined to ravage META stock. The first is the all-too-familiar broader tech sell-off, but the latter two — a steep deceleration in the underlying business and expensive, slow-to-take aspirations in the metaverse — are company-specific. In July, Meta reported its first-ever revenue decline in its 10 years as a public company, and its nascent metaverse division, Reality Labs, reported an operating loss of $5.8 billion in the first six months of 2022 alone. This confluence of negative catalysts means that Meta stock now trades at never-before-seen valuations. The stock trades for just 11 times earnings despite an incredible 3.65 billion monthly active users across its Facebook, Instagram, Messenger and WhatsApp services.
Upstart Holdings Inc. (UPST)
Last and least by year-to-date performance is Upstart, which is likely the single riskiest stock on this list. Upstart has grand plans to disrupt the traditional credit scoring system and mainstays like Fair Isaac Corp. (FICO) and its FICO system. Its artificial-intelligence-powered system has proven an early ability to predict default rates with much greater accuracy, but UPST’s questionable decision to get into the loan business itself is proving ill-timed. Higher rates and a potential recession don’t make for the best circumstances. The resultant deceleration in Upstart’s revenue growth has been nothing short of epic — after soaring 264% in 2021, analysts expect revenue growth of just 6% in 2022. These are some of the justified reasons behind Upstart’s fall, but as for why its stock may be ripe for bottom-feeders: Analysts see UPST earnings per share surging 85% in 2023 as it resolves some of its issues, which puts the stock at just 17 times next year’s earnings.
10 of the best stocks to buy for 2022:
— EOG Resources Inc. (EOG)
— Grupo Aeroportuario del Sureste SAB de CV (ASR)
— Visa Inc. (V)
— Microsoft Corp. (MSFT)
— Alphabet Inc. (GOOG, GOOGL)
— Lowe’s Cos. Inc. (LOW)
— Medifast Inc. (MED)
— ASML Holding NV (ASML)
— Meta Platforms Inc. (META)
— Upstart Holdings Inc. (UPST)
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10 of the Best Stocks to Buy for 2022 originally appeared on usnews.com
