3 Hot Stocks to Buy Now

There’s no question 2022 has been a difficult year for investors, particularly for momentum investors. Persistently elevated inflation, rising interest rates and macroeconomic uncertainty have pressured stock prices throughout the year. In addition, rising costs and a tight labor market are eating into profit margins and weighing on valuations. As a result, less than one in four S&P 500 stocks has generated a positive year-to-date return so far in 2022.

[Sign up for stock news with our Invested newsletter.]

Fortunately, a handful of hot stocks have transcended the broad market weakness and are positioned to continue to make new highs heading into 2023, according to Bank of America analysts.

Here are three hot stocks to buy that have generated positive returns in 2022 and have outperformed the S&P 500 by at least 30% in the past year:

— UnitedHealth Group Inc. (ticker: UNH)

— Exxon Mobil Corp. (XOM)

— Chevron Corp. (CVX)

UnitedHealth Group Inc. (UNH)

UnitedHealth is the largest U.S. managed health care firm. Despite the challenging environment, UnitedHealth has reported positive revenue and net income growth in the past three quarters, including double-digit revenue growth. As a result, UNH shares have grinded higher by 8.7% this year through Nov. 9 on a total return basis, which includes dividends, and have outperformed the S&P 500 by nearly 40% over the past 12 months. In fact, while many investors are concerned about a potential economic recession, UnitedHealth shares made new all-time highs in October.

Analyst Kevin Fischbeck says UnitedHealth has several key tail winds heading into 2023 that could help the stock stay hot in coming quarters. He says UnitedHealth’s utilization trends are encouraging, its earnings correlate positively with rising interest rates and the U.S. midterm elections could help reduce health care regulatory uncertainty.

The company’s Optum pharmacy benefit manager and health care provider business has been a particularly strong growth source, including 17.1% revenue growth in the third quarter.

“Alongside strong results in Q3, a favorable utilization/trend environment and 2023 guidance being de-risked, these factors add confidence to the forward trajectory and UNH’s ability to grow EPS 13-16% for years to come regardless of the macroeconomic environment, justifying a significant premium vs. most assets, in our view,” Fischbeck says.

He says UnitedHealth should generate double-digit earnings growth even during a recession, a rarity among blue-chip stocks.

Bank of America has a “buy” rating and $632 price target for UNH stock, which closed at $540.66 on Nov. 9.

Exxon Mobil Corp. (XOM)

Exxon Mobil is the largest U.S. oil and gas major. The energy sector has been the lone silver lining in the difficult market and is the only S&P 500 sector that has generated a positive return over the past 12 months. Energy prices were already on the rise in early 2022 even before Russia invaded Ukraine, but the conflict worsened an already tight global energy supply.

As a result, oil and gas prices have surged, and energy companies such as Exxon Mobil have enjoyed record profits in an otherwise difficult market environment.

In October, Exxon reported a record $18.7 billion in adjusted third-quarter profits and said revenue was up 48.2% from a year earlier. Exxon’s stock is now up 83.5% year to date, making it the hottest stock on this list. Over the past year, Exxon shares have outperformed the S&P 500 by 89%.

Even after its huge 2022 run, analyst Doug Leggate says the Exxon rally still has legs heading into 2023. Leggate says Exxon is the cream of the crop in a red-hot oil and gas market thanks to its unique organic production growth opportunities.

“XOM remains the only material growth story of the global oil majors — planning to double cash flow between 2019 and 2027 and led by Guyana and long-life assets that offset (a) greater mix of higher-decline Permian production from projects secured at the bottom of the cycle,” Leggate says.

Bank of America has a “buy” rating and $123 price target for XOM stock, which closed at $108.90 on Nov. 9.

Chevron Corp. (CVX)

Like Exxon Mobil, oil major Chevron has been riding the wave of surging energy prices, reporting 83.8% net income growth and 49.2% revenue growth in the third quarter. The stellar fundamental performance has also translated to big gains for investors. Chevron shares are up 55.9% year to date and have outperformed the S&P 500 by 76% in the past 12 months.

While Exxon is Leggate’s top energy stock pick, he says Chevron shares will likely also stay hot given the favorable environment. Leggate says Chevron’s earnings are particularly leveraged to upstream exploration and production, making the company’s profitability highly correlated to crude oil prices. Brent crude oil prices are currently more than $90 per barrel. Leggate estimates Chevron shares can generate a total return of more than 10% at Brent prices of $80 a barrel and double those returns if prices remain higher than $90 per barrel.

A large part of Leggate’s bull thesis on Chevron is the company’s commitment to capital returns, including its 3.1% dividend. Chevron and Exxon are both among a small group of just 65 so-called dividend aristocrats, which are S&P 500 companies that have raised their per-share dividend payouts through thick and thin for at least 25 consecutive years.

“Capital discipline and capital efficiency remain central to how management has positioned the investment case, enabling buybacks of $15 billion that, as a proportion of capitalization, stands around 50% above XOM,” Leggate says.

Bank of America has a “buy” rating and $180 price target for CVX stock, which closed at $177.93 on Nov. 9.

More from U.S. News

7 Psychedelic Stocks to Watch

9 Short Squeeze Stocks That Could Take Off in November

2022’s 10 Best-Performing Stocks

3 Hot Stocks to Buy Now originally appeared on usnews.com

Update 11/10/22: This story was published at an earlier date and has been updated with new information.

Related Categories:

Latest News

More from WTOP

Log in to your WTOP account for notifications and alerts customized for you.

Sign up