With one quarter left to go in 2022, this year is shaping up to be a lot different than most investors had expected. And that means, as investors look to retool their portfolios with the best stocks for the rest of 2022 and beyond, they’ll have to take a somewhat different tack than they did at the start of the year.
The optimism following strong returns in 2020 and 2021 has given way to bear market angst. And, following the most recent downturn, the Dow joined the S&P 500 and Nasdaq in bear-market territory.
As for the reasons? “Pick one!” says John Del Vecchio, co-manager of the $150 million AdvisorShares Ranger Equity Bear ETF (HDGE (opens in new tab)), an actively managed exchange-traded fund (ETF) specializing in short selling. “When we entered the year, stocks were expensive. We had a new generation of traders in the game who have never seen a bear market and thus had no understanding of the risk they were taking. We had new tech companies with shaky business models supported by cheap money. And we had inflation bubbling up, guaranteeing that the Federal Reserve would have to tighten monetary policy. Given those conditions, a bear market was inevitable.”
But as we look to the last quarter of the year, have those conditions changed? And might there be some value in the wreckage?
“We’re seeing incredible opportunity here,” says Sonia Joao, chief operating officer of Robertson Wealth Management. “Some of our favorite growth names, particularly in technology, are trading at prices we never expected to see again. And some of our favorite income plays are sporting their highest yields in years.”
There is no guarantee that prices recover tomorrow or even this year. And Fed Chairman Jerome Powell has made it abundantly clear that he intends to keep raising rates “until the job is done.” But it is exactly at the moment that things look the most bleak that the best opportunities tend to present themselves.
Today, let’s take a look at some of those opportunities in 15 of the best stocks to buy for the remainder of 2022. Some of these will be familiar household names, but others will likely be new to you. But all, for one reason or another, are well positioned to benefit from a recovery in the last quarter of the year and into 2023.
Data is as of Sept. 28. Stocks listed in reverse order of yield. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
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Amazon.com Industry: Internet retailMarket value: $1.2 trillionDividend yield: N/AAmazon.com (AMZN (opens in new tab), $118.01) made news this year by undergoing a 20-for-1 stock split. But the optimism of that announcement has quickly faded as the shares have slumped. AMZN stock is now trading about 40% below its all-time highs and has given back most of its COVID-era gains. The shares are only marginally higher than they were in the summer of 2018, four years ago.
But here’s the thing: This isn’t the first time Amazon has taken a tumble. The shares dropped by more than 30% during the late-2018 market correction and lost a quarter of their value or more in 2011, 2014 and 2016. And then, of course, there was 2008, where the shares lost nearly two-thirds of their value.
Every time AMZN hit a rough patch, it came back stronger. Naturally, today’s Amazon is a larger, more mature company than the brash internet startup it used to be. It’s also struggling with growing pains typical of a company its size, such as labor unrest and political pressure.
But let’s ask ourselves a couple questions: Do you buy more or less on AMZN stock today than you did five years ago? And do you expect that you’ll be buying more or less five years from now?
Apart from being the leading internet retailer, Amazon remains the No. 1 player in cloud computing services via its AWS platform.
The shares trade at 2.5 times sales. That’s ever so slightly higher than the S&P 500, at 2.3. However, while that’s not “cheap” in a traditional value sense, it’s close to a six-year low for Amazon … and that might be an attractive entry point in what could be one of the best stocks to buy for the rest of 2022 and beyond.
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Alphabet Industry: Internet content and informationMarket value: $1.3 trillionDividend yield: N/ALike Amazon, Google parent Alphabet (GOOGL (opens in new tab), $100.05) also recently underwent a 20-for-1 stock split, which happened on July 15. And as is the case with Amazon, the shares have really struggled ever since.
GOOGL’s shares are down by over a third from their 2021 highs, erasing nearly two years’ worth of gains.
Even after the tumble, Alphabet’s shares are not “cheap” in a strict value sense, as they trade hands at 4.8 times sales. But that’s down considerably from a price-to-sales (P/S) ratio in the 8s over the past year or so. And looking at GOOGL’s price-to-earnings (P/E) ratio, the stock trades at a not-at-all unreasonable 18 times trailing earnings.
If there was ever a stock to justify a high multiple, it would be Alphabet. Despite the company’s gargantuan size, it still enjoyed quarterly revenue growth of 13% last quarter and a fat return on equity (RoE) of close to 30%.
One more thing about that P/S: GOOGL shares have only dipped to these levels a handful of times in the Alphabet’s history as a public company. And every time they did, they came roaring back.
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PayPal Holdings Industry: Credit servicesMarket value: $105.4 billionDividend yield: N/AAnything even remotely related to fintech or distributed finance has had a terrible time in 2022. And some of this weakness is justified. While the financial sector is ripe for transformation, the speculation in cryptocurrencies got out of control. El Salvador essentially called the market top in Bitcoin by making it legal tender in September of last year. It peaked two months later and has been in freefall ever since.
But here’s the thing. The baby was thrown out with the bathwater. Yes, cryptocurrency might not quite be ready for primetime. But the world of finance is still very much ripe for disruption. And PayPal Holdings (PYPL (opens in new tab), $91.12) is one of the best-established players in this developing new ecosystem.
Apart from PayPal’s own namesake payment system that is ubiquitous on websites, the company also owns the popular Venmo mobile app. Venmo is the preferred payment app for many young people and is popular with gig workers.
PayPal’s shares are now down close to 70% from their recent highs and trade for 4.1 times sales. That’s close to the cheapest they’ve been in PayPal’s entire history as a public company!
If you’re not interested in buying a company when it’s marked down by 70%, then frankly, when are you ever going to be interested in it?
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Allbirds Industry: Apparel retailMarket value: $491.4 millionDividend yield: N/ALet’s step away from Big Tech for a minute.
2021 was a big year for initial public offerings (IPOs), but many of the stocks that went public last year have really struggled in 2022. As a case in point, consider the shares of eco-friendly shoemaker Allbirds (BIRD (opens in new tab), $3.30).
Allbirds manufacturers and markets athletic and casual shoes made primarily out of wool and plant-based materials. The company even developed a “carbon-negative” foam to be used in its shoe soles, meaning that the production process actually removes carbon dioxide from the atmosphere rather than adding to it.
It’s a novel company selling trendy, popular shoes that recently became available in Nordstrom stores. Yet none of that seems to matter in 2022. The shares are currently 90% below their 52-week highs, and nearly 80% below their $15 IPO price.
BIRD is more speculative than many of the other best stocks for 2022 covered here. It has a market cap of less than $500 million and is not yet profitable. But it’s worth noting that institutional investors have a preference for companies with strong environmental credentials, and it’s hard to find too many companies with stronger environmental bona fides than Allbirds.
And with a market cap as low as Allbirds’ current valuation, the company could also be a takeover target for a traditional apparel retail name looking to boost their image.
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Dutch Bros Industry: RestaurantsMarket value: $5.5 billionDividend yield: N/AFor another recent IPO that has really struggled in 2022, consider the shares of Dutch Bros (BROS (opens in new tab), $33.82). Founded in 1992, Dutch Bros is an operator and franchisor of drive-through coffee shops specializing in espresso-based drinks. As of year-end 2021, the company had 538 locations spread across 12 states. And it plans to open at least 130 stores by the end of this year.
This is a tough environment for companies in the food and drinks business. Labor is expensive and hard to come by, and inflation has been unrelenting. And there is the broader risk that the combination of a slower-growing economy and rising prices will cause consumers to pull back.
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That might be true, but expenditures on little luxuries such as premium coffee tend to be pretty recession-resistant, as they offer a cheap escape from life’s frustrations.
BROS stock is currently down nearly 60% below its 52-week high set shortly after its late 2021 IPO. It also trades at 3.0 times sales. That’s a reasonable valuation for a high-growth company looking to increase its store count by 24% this year.
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Walt Disney Industry: EntertainmentMarket value: $181.2 billionDividend yield: N/AWalt Disney (DIS (opens in new tab), $99.40) has really taken a lot of abuse this year. Increased competition in the streaming video space has made its Disney+ growth story look less compelling. Inflation and labor shortages haven’t helped either, nor has a nasty public spat with the state of Florida that saw the company’s special tax status come under attack.
All of this has contributed to the shares losing more than half their value from their 2021 highs.
But we shouldn’t underestimate Mickey Mouse. Disney is the premier name in family travel and entertainment and owns some of the most valuable media properties in history in the Marvel Cinematic Universe and Star Wars.
And after the tumble in the share price, Disney trades at prices first seen in 2014 and at a forward P/E ratio of just 18.
It’s very possible that the Fed’s aggressive rate hikes will push the U.S. into a nasty recession. We can’t rule that out. And if that were to happen, Disney might see a modest dip in park attendance and spending. But this clearly isn’t Disney’s first rodeo, and the company has survived and thrived throughout numerous recessions in its decades as a public company.
We can’t say for sure when the bottom will be in. But it’s not every day that you get to pick up shares of the world’s premium entertainment company at half price.
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Nvidia Industry: SemiconductorsMarket value: $317.4 billionDividend yield: 0.1% The tightness in the chip market is a major source of frustration for makers of everything from cars to home appliances, and it has been a contributing factor to the inflation inferno that’s been raging out of control for all of 2022. But it also presents an opportunity for top chipmakers to boost output and take advantage of strong pricing.
Leading graphics processing unit (GPU) maker Nvidia (NVDA (opens in new tab), $127.36) is particularly interesting here because its chips are critical to some of the biggest trends in computing today, including artificial intelligence, autonomous driving and cloud computing. The 2022 recession may accelerate from here, or it may not. It certainly can’t be ruled out. But regardless, the trends driving Nvidia’s growth remain firmly in place. In fact, investment in artificial intelligence and cloud computing might actually accelerate in a recession as a way to cut punishingly expensive labor costs.
Nvidia is insanely profitable for a hardware company, with an RoE of 34% over the past year and net margins of 26%. Those are software numbers from a hardware stock!
NVDA shares have dropped by nearly two-thirds since late 2021, and we can’t know for sure when the bleeding will stop. But the business has never been stronger, and it’s not unreasonable to expect Nvidia to swing back and become one of the best stocks to buy for the rest of 2022.
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Lowe’s Industry: Home improvement retailMarket value: $120.7 billionDividend yield: 2.2%Houses are wildly expensive these days for a host of reasons, but at the end of the day it really comes down to supply and demand. The supply of new homes has simply not kept pace with demand due to natural population growth and to the millennials finally settling down and starting families.
At the same time, soaring mortgage rates have made already expensive homes all but unaffordable to a lot of would-be buyers. This creates challenges. But it also creates opportunities for hardware and home good stores like Lowe’s (LOW (opens in new tab), $194.53). Homeowners, and particularly millennial homeowners, have been investing in their homes. Fully 75% of millennial homeowners started a home improvement project during the pandemic.
But even in the post-pandemic world, demand for home improvements has remained strong. Many new homeowners are choosing to buy older homes as the inventory of new homes has simply not been able to keep up with demand.
Lowe’s is down about 26% from its highs, and at current prices, shares trade hands for 15 times earnings and yield 2.2%.
About that dividend: Lowe’s just raised it by 31% earlier this year. There’s no greater sign of confidence by management than an aggressive dividend hike. Companies have a natural tendency to hoard cash, so they’re generally not willing to part with it via dividend payments unless they see a lot more coming in to replace it.
Lowe’s clearly is confident on that front: LOW is a Dividend Aristocrat with nearly half a century of uninterrupted payout hikes behind it. So if you want to bet on a year-end rebound and put a dividend grower in your pocket, Lowe’s is one of the best stocks to buy for the remainder of 2022 and beyond.
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Home Depot Industry: Home improvement retailMarket value: $288.9 billionDividend yield: 2.8%If Lowe’s is a Buy, then it only makes sense to give rival Home Depot (HD (opens in new tab), $282.19) a good look too.
HD shares have really struggled this year and are now down by about 36% from their highs. We should look at this recent setback as a buying opportunity in one of greatest success stories in the history of American retail.
Inflation is a worry, and justifiably so. Investors worry that inflation – and the higher mortgage rates that come with it – will deter home buying and major renovation projects.
Home Depot is not impervious to these forces, of course. But it’s hard to see inflation having a meaningful impact on smaller do-it-yourself projects. And the demographic trends supporting the housing market – namely the family formation of the millennials – are durable and should help to balance any weakness due to rising mortgage rates.
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Prologis Industry: Real estate (industrial)Market value: $76.9 billionDividend yield: 2.9%The aforementioned Amazon.com is just about unstoppable. It’s all but inevitable that a greater and greater percentage of commerce will be happening online.
That means that demand for the logistical real estate that supports e-commerce is also unstoppable. And that brings us to Prologis (PLD (opens in new tab), $103.93), a real estate investment trust (REIT) specializing in exactly those types of properties. Prologis owns and operates more than 4,700 buildings with an astounding 1 billion square feet of space. And it’s all about to get even bigger considering that Prologis agreed to acquire its largest rival in the industrial space, Duke Realty (DRE (opens in new tab)), back in June.
Prologis’ shares have struggled in 2022, down about 40% from their 52-week highs. REITs tend to be interest-rate sensitive, and the Fed’s aggressive rate hikes certainly haven’t helped. Yet Prologis’ dividend yield, at 2.9%, is the highest it has been in years, and the company’s business prospects have never been brighter.
This best-in-class REIT is poised to recover, making it one of the best stocks to buy for the remainder of 2022 … and beyond.
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Target Industry: Discount storesMarket value: $71.7 billionDividend yield: 2.8%Over the course of 2022, retail powerhouse Target (TGT (opens in new tab), $155.87) unwittingly became the poster child for everything plaguing the economy. The company’s inventory, which started the year weighted heavily to home goods, electronics and other items popular during the pandemic, suddenly made a lot less sense when consumers were diverting more of their expenditures on travel, experiences and new office clothes. This forced Target to mark down a lot of its inventory and slash its orders, which didn’t exactly send a signal of confidence.
And naturally, the inflation that is wrecking the economy hasn’t spared Target or its consumers. Target’s costs are rising at a time when its lower-income and middle-income consumers are strapped for cash and can’t absorb cost hikes themselves.
Amid the doom and gloom, Target’s share price is down more than 40% from its 52-week highs.
But here’s the thing: Target’s management clearly isn’t too concerned about its outlook. The company raised its dividend by 20% earlier this year, even as Wall Street was panicking over its inventory build. This tells me that they believe their current travails to be a mere bump in the road.
Meanwhile, the shares are cheap, trading at just 17 times earnings. Target would seem like a safe bet as a turnaround in remaining months of the year. It’s a store with a long history of selling basic necessities to the masses. It’s survived inflation, deflation and everything in between, and this time should be no different.
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Chevron Industry: Integrated oil and gasMarket value: $285.4 billionDividend yield: 3.9%Energy stocks have been one of the few bright spots in 2022. But as we enter the last quarter, even the energy supermajors are getting beaten up. As a case in point, take a look at Chevron (CVX (opens in new tab), $145.78). Between September of last year and May 2022, the shares nearly doubled in value. But it’s been a rough road since then, and the shares are down about 20% from those recent highs.
CVX might seem like an odd pick among the best stocks to buy for the rest of 2022. The bull market in energy stocks could be over, as energy prices have been slumping of late and the threat of a recession potentially lowers demand. Anything is possible.
But energy stocks are still cheap and under-owned relative to the broader market and pay some of the highest dividends you’re going to find. Chevron sports a current yield of 3.9%.
Plus, despite the recent pullback, Chevron’s shares are still trading well above the $135 level that marked their highs for most of the past decade.
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Digital Realty Trust Industry: Real estate (datacenters)Market value: $29.32 billionDividend yield: 4.7%We covered the general invincibility of Amazon.com and its peers. Demand for e-commerce and for cloud computing will not be letting up any time soon. If anything, a rough economy might actually accelerate it as consumers and businesses alike look to cut costs.
This plays nicely into the business model of Digital Realty Trust (DLR (opens in new tab), $99.77), a leading datacenter REIT. Digital Realty has more than 4,000 customers spread across 50 metro areas around the world, and it counts among its largest tenants International Business Machines (IBM (opens in new tab)), Oracle (ORCL (opens in new tab)), LinkedIn, Verizon (VZ (opens in new tab)), Comcast (CMCSA (opens in new tab)) and a host of other household names.
We live in the era of Big Data, and a greater and greater percentage of data storage and processing is happening in offsite datacenters. And apart from the efficiency and cost savings of this model, there is a security component as well. No major enterprise can risk the possibility that a natural disaster or act of terrorism takes out their systems. Having redundancy in place via far-flung datacenters is a no brainer.
REITs are sensitive to interest rate moves, and it’s not surprising that DLR has followed the market lower given how aggressive the Fed has been in raising rates. It’s currently sitting about 45% below its 52-week highs. But the trends backing the REIT aren’t slowing, and we can collect a growing 4.7% dividend while we wait for the market to appreciate this.
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Realty Income Industry: Real estate (retail)Market value: $37.3 billionDividend yield: 4.8%Real estate investment trust investors tend to focus on dividend yield, and with bond yields as depressed as they’ve been in recent years, many investors have come to view REITs as a substitute for bonds.
That’s not a problem when yields are falling. Falling bond yields mean rising bond prices … and rising prices for bond substitutes like REITs. Of course, the exact opposite happens when yields are rising as they are today. Rising bond yields mean falling bond prices … and pressure on anything that has come to be viewed as bond-like!
This brings me to conservative retail REIT Realty Income (O (opens in new tab), $60.37). Realty Income is about as close as you can get to a bond while still being a stock. The company sports a competitive 4.8% dividend yield, but unlike bond coupon payments – which never change – Realty Income raises its dividend every year.
Actually, Realty Income raises its dividend four times per year! The REIT has hiked its dividend for an impressive 100 consecutive quarters.
We don’t know what new challenges the remainder of 2022 will bring. But it’s safe to assume that Realty Income will continue to raise its dividend like clockwork in 2023 and beyond. You’re not going to get rich in Realty Income. But you will most certainly generate a consistent stream of safe dividend income.
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Energy Transfer LP Industry: Oil and gas midstreamMarket value: $34.3 billionDividend yield: 8.7%Energy has been a bright spot in 2022, though even most energy stocks have struggled amidst the volatility of the third quarter. That’s the nature of a bear market. Even profitable companies enjoying a windfall get roughed up as investors have to sell their winners to cover losses elsewhere.
Once the market settles down a bit, energy stocks should enjoy a solid finish to 2022 and may continue to lead for years to come. It seems like an eternity ago, but energy stocks were some of the strongest performers in the 2003-2007 bull market that followed the 1990s tech boom and bust.
One stock in the sector to watch is pipeline giant Energy Transfer LP (ET (opens in new tab), $11.11). Energy Transfer operates a massive network of 120,000 miles of pipelines crisscrossing North America. Approximately 30% of America’s crude oil and natural gas is moved through Energy Transfer pipelines.
Energy Transfer is up strongly in 2022, bucking the overall bearish trend of the market. But the shares have pulled back of late and are now about 16% below their 2022 highs. Consider this pullback an opportunity to buy the dip.
If you need an extra sweetener, ET also pays a monster distribution of 8.7%. The stock raised its payout by 15% in August after raising it by 15% in May and 14% in November. Not a bad run!
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