The S&P 500 (SPY) returned ~28% year-to-date and is about to close to outpacing the Nasdaq's (QQQ) return so far. In the year ahead, growth investors are fretting over the Fed's rate tightening policy.
This is a mistake.
The market already anticipates rate hikes for 2022. Technology investors who sold overpriced stocks will avoid market risks. They will avoid the pull of a Nasdaq correction, should it arrive. Still, investors should watch out for persistently high inflation (6.8% in November 2021). The monthly CPI will dictate how fast the Fed will act in raising rates.
Investing Strategy
Technology investors have the most to fear. If overvaluation leaders like Tesla (TSLA) underperform, technology stocks with high price-to-earnings and price-to-sales ratios could fall. Instead of trying to time a market correction, take small positions. Among the 22 top picks to consider, force yourself to watch expensive stocks first. Start with a 0.2% allocation (or 20 positions with a 0.2% allocation) in the stocks listed below.
Among the 22 picks, decide which of the two stocks are your highest conviction stocks to buy.
1- Facebook (FB) renamed itself, Meta, to shake off the media's attack. TikTok is taking its Instagram market share, as users spend more time. TikTok, owned by ByteDance (BDNCE), does not make China investable at this time. Still, investors need to weigh China's competitive threat to Meta.
Meta has an advantage.
China is limiting the time children may spend on video games. It is weakening the influence technology firms have on the Chinese. Conversely, Meta only needs to wait for the Instagram backlash to fade. Advertisers will return to the platform because they have no other choice. Furthermore, bet on Meta invigorating virtual reality this time.
Apple (AAPL) may have poached Meta's public relations head. This will not change Meta's positive sales momentum for Oculus. Nor does it change Meta's trajectory in becoming a massive ecosystem for the metaverse.
Second on FAANG is 2- Amazon (AMZN). A few months ago, it dumped over 10,000 Chinese suppliers to clean up the bad actors.
Source: StockRover
Per StockRover, AMZN stock has a 27% upside for investors. The company demonstrated eight straight quarters of strong growth. AMZN stock will not fall into deep value territory, as noted by the 55/100 value score.
Value investors will fall into the trap of comparing Alibaba (BABA) to Amazon.com. This is no longer a valid comparison because the Chinese Communist Party re-wrote the e-commerce rules. The party is still holding a grudge with Jack Ma. It continues to introduce new penalties and hefty fines. More recently, the CCP is asking Alibaba to sell its 30% stake in Weibo (WB). This sale will strengthen a state-owned media company.
3- Netflix (NFLX) is outflanking 4- Disney (DIS) and 5- AT&T (T) with K-Drama. Squid Game knocked it out of the ballpark. In 2022, history will repeat itself. Netflix may release another foreign hit movie, which will cause NFLX stock to spike.
Chart Courtesy of Stockrover (Ticker->Chart->Add volume, MACD)
Wait for the MACD negative slope to reverse. If the faster-moving line crosses over, it may signal an end to the stock's downtrend. Currently, the massive rotation among the streaming, content suppliers, and television firms is not yet over.
6- Google (GOOG) is a cash flow machine. While it lost a EUR 2.4 billion appeal against a European Union fine, Google's operating profits have room to expand.
Users are not leaving YouTube despite the site displaying three or more ads per video. They will upgrade to YouTube premium for an ad-free experience. Subscription fees will add to Google's incredibly consistent revenue growth in the next year.
7- The chip shortage more than tripled the prices of GPUs, putting Nvidia (NVDA) in the driver's seat. Go through the exercise of shopping for a high-end gaming computer. The RTX 3080 is out of stock in most places. The MSRP is $699. On NewEgg, the asking price is at least $1,665.99.
At CES 2022, the GPU is so hot that Nvidia will not announce a mid-range RTX 4060 or 4070. Instead, gamers will need $2,999 to buy an RTX 4090.
8- Investors dumped Unity (U) on valuation concerns. U stock is expensive for a reason. Its Weta Digital acquisition will advance its gaming graphics quality exponentially. Think of movie-level graphics in games.
9- Roblox (RBLX) is facing child labor accusations. Still, daily active users grew by 35% to 49.4 million. Investors may stop buying stocks based solely on DAU. They may puzzle over the stock's valuation relative to the low-quality graphics in its platform.
Expect Roblox to continue posting user additions. It will invest in enhancing its platform tools in the next year. This will retain user activity and growth rates in 2022.
10- Sea Limited (SE) took a 360-degree turn at $360 and is now at levels not seen since May. Investors are mistakenly associating Sea with Chinese stocks. Sea must balance the aggressive promotional giveaways on Shopee against user retention targets.
11- Okta (OKTA), created an entry point after the November plunge from $270 to sub $220.
Chart courtesy of Okta Q2 Presentation
Organizations will need to rely on Identity connections between the hybrid IT cloud and Zero Trust security. Digital transformation is not going away. As its customer base grows, Okta's business will flourish for the next few years.
12 - Healthcare is in secular growth led by the need to cover COVID treatments. Continue holding UnitedHealth (UNH) and Cigna (CI). Customers will appreciate the coverage of COVID testing. Expect UnitedHealth and Cigna to grow their plan membership even after the pandemic ends.
13- CVS Health (CVS), now up by over 51% from lows. The stock remains a health care and drug store stock to buy. Expect sustained customer traffic growth at stores, as customers manage their healthcare needs. Cash flow is so strong that CVS raised its dividend by 10%.
14- In the self-driving and automotive parts market, Aptiv (APTV) took a 180-degree turn from $180. APTV stock is expensive for a reason. The firm is transforming. It is exiting the low-growth, low-margin markets. For example, it spun off its Powertrain segment. Last year, it formed an autonomous joint venture with Hyundai (OTCPK:HYMTF).
APTV is a driverless vehicle play that investors are ignoring.
15- Magna (MGA) has a less aggressive pivot than Aptiv from traditional automotive parts to automation in cars. It will build Fisker (FSR) EVs.
16- AMD (AMD) commands the premium PC gaming market. Gamers will pick an AMD CPU over Intel (INTC). The chips have better multi-tasking capabilities at a favorable price/performance. Intel's Alder Lake is a good chip but its motherboards are too expensive. Until Intel's partners release budget boards, AMD will have an edge.
The AMD shareholder motto is "Never settle, never sell."
17- Oracle (ORCL) spooked investors with an aggressive acquisition. Use the stock's weakness as a chance to buy the stock.
18- Shopify (SHOP) outflanked Amazon. The firm gives small businesses a platform to build an online site. High inflation may hurt overall demand. Fortunately, the secular shift to online shopping will continue. This will lead to Shopify breaking merchant sales again and again.
19- People need their streaming music and will flock to Spotify (SPOT). Consumers have Apple Music as an alternative. Yet Spotify lets users share playlists. This increases brand awareness at a very low cost.
20- Comcast (CMCSA) is on sale again. The stock's downtrend began in September. The decline followed after investors sold streaming stocks like Roku (ROKU) in the summer.
When Comcast covers the Olympics in China for 2022, investors may rush back to the stock.
21- ViacomCBS (VIAC) has yet to fall low enough to consider. The P/E is 6.4 times and the forward P/E is 7.85 times suggests the stock is a buy on deep value. Why is the stock fading lower?
Archegos Capital sent VIAC stock to around $100 earlier this year. Once investors finish booking a loss on the stock, investors will consider its fundamentals. The firm is liquidating its properties and investing in its streaming content.
22- Investors may pick from electric vehicles or cryptocurrency. Value investors will consider both sectors are still in a bubble. Bitcoin (BTC-USD) prices are unpredictable, so investing in the platform may pay off. As volatility rises, activity on Coinbase (COIN) or Voyager (VYGVF) may rise.
Your Takeaway
I would pick FB and NFLX among the FAANGM as the top two stocks to consider. The firms are widely held. They helped lift the indices at all-time highs. That trend may continue in 2022.
The rest are 0.2% allocations for starters. What are your top picks?
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