It’s no secret that some stocks are just much more interesting to investors than others, and that’s what I’m going to look at today. Because this list includes Wall Street’s favorites for 2022, it will necessarily be diverse. That means it includes stocks across multiple sectors with varying catalysts for the coming year.
We can only guess that 2022, like 2021, will be full of surprises. But no matter what the environment, it always makes sense to invest in fundamentally sound businesses. In my eyes, all of the stocks listed below pass that subjective judgment with flying colors.
Since 2022 will be driven by high inflation and increasing rates from the Federal Reserve, it could be a tougher year. The comforting thing amongst all the persistent worries is that 2022 is forecast to be a strong year. Let’s look at stocks which should fare well.
My top picks are:
- Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL)
- Exxon Mobil (NYSE:XOM)
- ASML Holding (NASDAQ:ASML)
- Berkshire Hathaway (NYSE:BRK-B)
- Toyota (NYSE:TM)
- MercadoLibre (NASDAQ:MELI)
- Palo Alto Networks (NASDAQ:PANW)
Wall Street Favorites: Alphabet (GOOG,GOOGL)
And it’s also no secret that Wall Street loves Alphabet stock. Right now just about every analyst rating is “buy” or “overweight.” That’s pretty much the same as it always is. Google has steadily appreciated in price and should continue to. It trades for less than $3,000 per share currently but the high target price reaches nearly $4,000.
Here’s the funny thing about Google: It isn’t overpriced. I don’t mean in terms of the actual dollar price of a share. I am instead referring to the price-earnings (P/E) ratio. The P/E ratio of the S&P 500 over the current 10-year period is 38.9. Google’s trailing P/E ratio is 28.7 at a $2,917 share price. Nobody’s overpaying for GOOG stock, and one could argue that it’s somewhat underpriced given those P/E figures.
So, without getting into anything further regarding Google, there is reason to believe it ought to continue to do well in 2022. Google will continue to be controversial, but don’t expect its price to suffer.
Exxon Mobil (XOM)
Exxon Mobil has the current catalyst of simply being a major oil firm while gas prices remain volatile. According to AAA, average national gas prices are down roughly 10 cents over the last month. That’s a positive for consumers. But the other truth is that prices at the pump are still $1 higher than they were a year ago at $2.25. So, investors are right to assume that XOM stock makes a lot of sense right now.
Further, Exxon Mobil shares still have yet to recover following the pandemic trough. The simple truth is that Wall Street believes that XOM shares should trade at $72.81 on average. Given that they currently trade near $61, there’s room for optimism.
The title of this article is “Wall Street Favorites.” Exxon Mobil isn’t always that given that it currently has more “hold” ratings than “buys.” But analysts have been revising their opinions on this company up in the last few months, and I personally believe it’s a good investment for whatever that’s worth.
Don’t forget, Exxon Mobil pays a nice dividend. It’s around 88 cents per quarter. So, if Wall Street is correct, XOM shares will reach $73 in 2022. Add an extra $3.52 in dividends and it’s effectively worth $76.52. And that represents 25% upside from XOM’s current value.
Wall Street Favorites: ASML Holding (ASML)
ASML Holding makes the machines that make the semiconductors that are so vital to our world. These machines are called EUV lithography systems. ASML Holding produces two models, the 3400C and the 3600D.
Fortunately for investors, ASML is selling more and more of these massive, complex systems. In Q3 2021, ASML sold 4.111 billion EUR worth of those systems. That was significantly more than the 3.095 billion EUR worth of systems it sold a year prior. And through Q3, ASML sold 10.189 billion EUR of systems, up 43% on a year-over-year basis.
Basically, ASML Holding has a dominant position over the industry that could be considered a monopoly. It sells lithography machines to a handful of dominant players in the semiconductor industry and it is the only firm that makes such systems. The systems are massive, requiring multiple cargo plane shipments, and cost $140 million each.
EUV is the next potential standard bearer in the industry. Deep Ultraviolet (DUV) is still dominant but EUV should supplant it. AMSL is the only manufacturer producing the EUV machines and continued growth is just about certain.
Berkshire Hathaway (BRK.B)
Berkshire Hathaway is a Wall Street favorite from the perspective that it is fairly representative of America. So, if Wall Street loves American firms, then it loves Berkshire Hathaway shares too.
A look at the company’s top holdings shows that Apple tops the list at nearly 43%. Financial firms Bank of America (NYSE:BAC) and American Express (NYSE:AXP) are next, followed by Coca-Cola (NYSE:KO). It wouldn’t be hyperbolic to assert that an investment into BRK.B shares is a bet on a continued U.S. rebound.
BRK.B stock is a steady equity. The pandemic has been the exception to that rule, as prices dipped. But they’ve since recovered and are expected to rise through 2022 as well.
Berkshire Hathaway is also interesting because it owns several of the firms from this list its portfolio and is simply a steady performer.
Wall Street Favorites: Toyota (TM)
The reason Toyota looks strong in 2022 has less to do with Wall Street projections and more to do with electric vehicles (EVs). Nevertheless, let’s start there. Wall Street has pegged TM stock with a $211 target price. That’s quite a bit better than the current $184 that it trades at. And Toyota shares come with a dividend that gets paid twice annually, in March and September. This year that amounted to around $4 in total.
If we assume that holds flat in 2022, then prices should reasonably hit $215, equating to 16.85% returns. That’s less than the nearly 22% the S&P 500 returned through November, but still very strong.
The counterpoint though is that the overall stock market could be shaky in 2022. EVs on the other hand seem to be a surer bet. And Toyota is sure to be a big part of that conversation.
Toyota CEO Akio Toyoda recently revealed that his firm is preparing to launch 15 EVs. That was somewhat of a surprise from the usually conservative firm. But at the same time it points toward the value of EVs to stocks in traditional vehicle companies dominated by internal combustion sales.
Toyota plans to unveil 30 battery electric vehicles by 2030 and record 3.5 million sales of said vehicles by that time. In 2022, its stock should benefit from that shift.
MercadoLibre is Latin America’s answer to Amazon (NASDAQ:AMZN). And on a fundamental basis, now might be an absolutely great time to invest in the ecommerce growth firm.
Recent figures from the company tell of a fundamentally strong and improving firm. Q3 revenues hit $1.9 billion, up 72.9% on a YoY basis. That’s probably the clearest simple indication of why it makes sense to invest in MELI stock right now.
Payment volume and gross merchandise volume also increased substantially, rising to $20.9 billion and $7.3 billion, respectively. Those figures represented increases of 59% and 29.7% over Q3 results a year earlier.
And those broad metrics factor heavily into MELI stock carrying an average target price of $2,011. It currently trades for $1,325 and there is near unanimous consensus among analysts with coverage that it is indeed a buy.
That’s because the growth within the firm is projected to continue, with revenues expected to total $9.46 billion in 2022, up from just shy of $7 billion this year. A MercadoLibre purchase is a straightforward play on a formerly underserved Latin American ecommerce market. It’s one of the easiest picks there is.
Wall Street Favorites: Palo Alto Networks (PANW)
The idea of moats in business is one that anyone who spent any time in business school is familiar with. It’s synonymous with competitive advantage. The good news for Palo Alto Networks is that Morningstar Senior Equity Analyst Mark Cash sees the firm’s moat as having become stronger. He upgraded it from narrow to wide recently, meaning its competitive advantage has increased.
In speaking about Palo Alto’s moat and those of two other firms he noted “These three network security firms have established prolific customer switching costs and network effects, helping drive solid records of excess economic returns on invested capital that we expect to endure. Customer switching costs come from their security solutions being essential for operations. We believe widespread digital transformation initiatives during the pandemic put a spotlight directly on the importance of proper security.”
The greater the moat, the more it costs to switch and thus the more likely a firm’s success. Fortunately for Palo Alto Networks, that implies that 2022 will be a very strong year for the firm and its shares.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.