It’s official. Jerome Powell will serve a second term as Federal Reserve chairman. With that in mind, it’s a good time to consider what effect Powell’s reappointment will have on stocks to buy as we head into 2022.
Powell’s selection didn’t rise to the level of white smoke coming out of a chimney at the Vatican. In this case, there were only two choices — and investors had signaled their preference.
That was Powell. The reason is simple enough. One of the Federal Reserve’s primary responsibilities is to limit inflation, and recent economic data show it is rising at an uncomfortable level. With that in mind, Powell has a proven tendency to move at a measured pace. He gives investors clear signals when he intends to make moves.
That’s why the Fed Chair’s announcement that he may increase the pace of tapering caught investors off guard. The sooner the Fed takes its asset purchases down to zero, the sooner it may consider raising interest rates. However, if this program goes as scheduled, it may create an opportunity for long-term investors.
That’s why, on balance, investors are probably still bullish about Powell. So without further ado, let’s take a look at seven stocks to buy with Jerome Powell leading the Fed. These picks have received a bullish 12-month price target from sell-side analysts:
- JPMorgan Chase (NYSE:JPM)
- PayPal (NASDAQ:PYPL)
- Visa (NYSE:V)
- Southwest Airlines (NYSE:LUV)
- T-Mobile (NASDAQ:TMUS)
- Lamb Weston Holdings (NYSE:LW)
- Cigna (NYSE:CI)
Stocks to Buy: JPMorgan Chase (JPM)
Bank stocks will logically be a solid buy if interest rates rise sooner than expected. And if that’s the case, investors will likely seek out quality names like JPMorgan Chase. As of June 30, the bank had $3.7 trillion in assets and operations worldwide. And as the economy continues to recover, JPMorgan should see its lending revenue increase in concert with tapering slowing down.
Since the bank’s earnings report in October, several analysts have been raising their price target for JPM stock. The consensus 12-month price target suggests a modest 8% gain. However, that would likely move much higher if the Fed raises rates in the next year.
But let’s say the Fed decides to hold the line on interest rates. Well in that case, if you’re an investor who’s concerned about inflation, JPMorgan Chase’s dividend, which currently carries a 2.53% yield (that works out to a $4 per share annual payout), is certainly a nice buffer against the effects of inflation.
The second pick on our list of stocks to buy is PayPal. Current shareholders have had a rough several months, as PYPL stock recently went from a 52-week high to a 52-week low.
There are many reasons for that. Some analysts may have been troubled when PayPal missed on revenue for the second straight quarter. But most of the issues seem to center around an overall bearish sentiment surrounding tech stocks.
I can’t speak to the latter point. However, as to the revenue miss, I can understand that analysts had become accustomed to PayPal beating revenue numbers. And some believe PayPal will be a loser as consumers begin to return to in-person shopping.
However, I think that’s overstated. PayPal already has tools in place, such as debit and credit cards, that make it possible for users to use their PayPal account for in-person purchases.
With that in mind, the selloff in PYPL stock is now looking extreme. And the analyst community seems to agree. The stock has a $275 price target, which gives it a 44.5% upside from its current price.
Stocks to Buy: Visa (V)
If you’re looking for a more traditional payment processor, look no further than Visa. Recent data suggests that many consumers appear ready to use their credit cards this holiday season. Specifically, a recent article in the Wall Street Journal reports that approximately one in four Americans applied for a new credit card in the last 12 months.
That means even if consumers pay their balances in full (which is still encouraged), Visa will still be able to collect a transaction fee. And that means revenue is likely to go up the next time the company reports earnings in January. This is also before Visa increases its swipe fee, which it is likely to do in 2022.
The stock has a price target of $276, which is a 33% upside from its current price.
Southwest Airlines (LUV)
The next two stocks to buy may fall under the category of, “if you could only buy one.” The first is Southwest Airlines. Among the airline stocks, LUV stock has a $61 price target, which gives it a 32.6% upside from its current price.
Of course, as I write this, the country is trying to determine how serious the threat of the Covid-19 omicron variant will be. At this time, President Joe Biden’s administration is saying there will be no mass lockdowns. But in the short term, there may be some turbulence in a sector that was hoping for clear skies.
Southwest has not been immune to the staffing problems that have led to flight cancellations. And with oil prices back on the rise, the company is experiencing higher costs for jet fuel. However, one reason I’m partial to Southwest is that the airline does not rely on international travel, which is likely to remain a mess for some time yet.
Stocks to Buy: T-Mobile (TMUS)
T-Mobile was one of the strongest recovery plays of 2020. TMUS stock climbed approximately 80% from its pandemic low. But it’s been a different story in 2021 with the stock down 13.6% year-to-date (YTD). And there are some that believe wireless carries may continue to face tough conditions in 2022.
However, analysts expect T-Mobile to continue to add subscribers, particularly as it continues to benefit from its merger with Sprint. This merger has given the company access to the all-important mid-band 5G spectrum. Not only is this a “Goldilocks” solution of sorts from a technology standpoint, but it’s allowed the company to build out its 5G network while its competitors are still stuck on the starting blocks.
T-Mobile is also hoping to boost revenue by limiting some device promotions to its high-end service plan. The goal is to give customers an incentive to upgrade their plans.
Early results suggest the plan is working. That’s part of the reason that the company has a 12-month price target of $168, which is an upside of 45%.
Lamb Weston Holdings (LW)
Lamb Weston Holdings has been one of the companies most affected by inflation. The purveyor of frozen potato products has seen its stock price drop nearly 29% YTD. And much of that drop has occurred since June. Not helping matters is the company’s October earnings report, in which the company missed on both the top and bottom lines.
However, analysts are optimistic about the company’s fortunes in the next year. LW stock has a price target of $71, which would be a gain of 26.8% and would recover much of what the stock has lost in the last year.
That recovery may be underway. The stock appeared to hit a level of support on Dec. 1 and has started to bounce higher. Investors will want to see additional confirmation, but for now Lamb Weston looks ready to move higher.
Stocks to Buy: Cigna (CI)
Cigna closes out our list of stocks to buy. Buy-and-hold investors have watched CI stock move to a 52-week high only to lose all those gains and start trading near its 52-week low. The trend continued even after the company recorded a double beat in their most-recent earnings report.
This seems overdone. Cigna is one of the largest global health insurance companies, and it has contracts with 99% of U.S. pharmacies. It also has a significant presence in the pharmacy benefits manager (PBM) space, which gives it leverage when it comes to drug pricing.
However, like Lamb Weston, it appears that CI stock has hit a level of support and it could be ready to move significantly higher. In fact, analysts forecast that Cigna will hit a 12-month price target of $268, which would be a 28.4% gain from the stock’s current level.
On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.