To find solid independent market analysis and investment ideas, I like to regularly consult those unsung market heroes — stock newsletter writers.
Sure, I have a bias, because I write one, too (link in bio below). But many of them are worth listening to. For a 2022 market outlook and eight stocks to consider owning, let’s check in with three letter writers with solid long-term records.
High level summary: Expect 5%-6% gains for the S&P 500 SPX,
Value stocks over growth
Stock market outlook: The rolling U.S. market corrections last year made a lot of investors worried about inflation and Fed policy, and those concerns linger. But John Buckingham, editor of The Prudent Speculator, isn’t too worried about the stock market in 2022 because he expects economic growth to hang in there. “Historically, miserable stock performance has coincided with an earnings recession. So, if there is no expectation of an earnings recession, I don’t see how you can be bearish,” he says.
Buckingham expects global growth and solid earnings gains to push the S&P 500 up 6% this year. But value stocks should do much better, he predicts, since they tend to outperform in a rising interest rate environment with higher inflation. He expects the Russell 3000 Value Index to gain 9%-11%.
Buckingham cautions that parts of the U.S. market are risky because they are overvalued. He cites popular growth stocks such as Amazon.com AMZN,
Favorite stocks: Here’s an important proviso. Like the other two newsletter writers below, Buckingham encourages investors to own a broadly diversified portfolio to reduce risk. But he’s OK with singling out a few that could be among your holdings, depending on what else you own.
First, he says, consider General Motors GM,
Next, consider the reopening play Zimmer Biomet ZBH,
Another reopening play to consider: Walt Disney Co. DIS,
Stock yield reveals bargains
Stock market outlook: Inflation will continue to be an issue throughout 2022, driven in part by high energy prices. This will force the Fed to play catch up on interest rate hikes. That could be bad news for the U.S. stock market. “The Fed has a track record of always being late to the party,” says Kelly Wright, managing editor of Investment Quality Trends. “Then it over compensates, and it throws the market into spasms.” Wright says there’s even a risk the Fed might create a recession in 2022: “If we have a flat year…for the stock market, it will be a victory.”
Another challenge is that the market looks overvalued. Consider the market valuation intelligence we can glean from Wright’s stock selection system. To identify timely entries and exits in dividend yield stocks, Wright looks for historically high- and low yields. Historically high yields occur when a stock sells off a lot. (Yields rise when stocks fall.) The low-water marks for yields happen when a stock rallies hard. Over time, stock price moves tend to be bracketed by historically high and low yields. You can use the same valuation analysis for the stock market, overall. It is not reassuring.
Consider the Dow Jones Industrial Average DJIA,
Favorite stocks: Barring a recession, banks may do well because they benefit from rising rates — as long as the yield curve stays upward sloping. In that scenario, rising rates mean they can earn more on loans (loan interest rates are linked the long end of the yield curve) compared to what banks pay on deposits (the short end). Despite this bullish outlook, some bank stocks still look inexpensive, by Wright’s system.
For example, First Merchants’s FRME,
In healthcare, consider Merck MRK,
Turnaround candidates
Stock market outlook: “We don’t think the economy is going to into a recession,” says Bruce Kaser, chief analyst at the Cabot Turnaround Letter. Earnings will put in nice 8%-10% growth this year, he says. That’s the good news. But solid earnings growth may be offset by downward pressure on valuation multiples caused by Fed hikes and rising interest rates. Another headwind: The decline in fiscal stimulus out of Washington, D.C. The upshot, Kaser says, will be 5% gains for the S&P 500.
Favorite stocks: As the name of his stock letter suggests, Kaser likes “turnrounds,” meaning companies whose fortunes may be improving because of a change in leadership or strategy. One to consider is Nokia NOK,
Next, Kaser likes TreeHouse Foods THS,
Michael Brush is a columnist for MarketWatch. At the time of publication, he owned AMZN and TSLA. Brush has suggested AMZN, NVDA, TSLA, GM, ZBH, DIS, FRME and MRK in his stock newsletter, Brush Up on Stocks. Follow him on Twitter @mbrushstocks.
More: These 12 ‘Dividend Aristocrat’ stocks have been the best income compounders over 5 years
Plus: Here’s what to expect from stocks in 2022 after the market’s big gain on January’s first trading day
Source: finance.yahoo.com