Although the benchmark S&P 500 recently hit an all-time high, many investors are rightfully concerned about what 2022 and the years beyond will hold. With the Federal Reserve shifting its monetary policy to a more hawkish tone via planned rate hikes next year, several investors have chosen to rotate out of risk-on assets into safer trades. This puts a quandary on how to approach stocks to buy in general.
Arguably those who wish to acquire shares at their peak under the thesis that they could go higher still are in the minority. Yet despite the record-breaking surge in both the benchmark indices, multiple discounts exist. Not only is the Fed atop many investors’ radar, the ongoing pandemic and the resultant governmental response put a damper on equities. But that also means you can acquire contrarian stocks to buy.
To be clear, when a publicly traded company tumbles — and I’m talking tumbling by double digits over a short period — there’s usually a reason for it. In most cases, the reason is not a good one. Therefore, you don’t want to engage in these stocks to buy with money you can’t afford to lose. I’m going to trust my colleagues to present less-riskier ideas. Here, it’s all about high-risk, high-reward ideas.
In addition, I’d like to disclose that I’m having difficulties being too optimistic about the year ahead. You should know that the wealth gap has only increased during the coronavirus pandemic. Plus, a few years ago, over half of Americans had nothing in equities, per CNN Business. So, if that’s the case, where did all this money — and wild valuations in stocks to buy and almost everything else — come from?
True, work-from-home initiatives and government stimulus helped. But the Wall Street Journal also noted that global investors are choosing American regarding equity-related investments. As well, Chinese buyers have been bidding up U.S. real estate prior to the pandemic — and it wouldn’t be surprising if they’re bolstering home prices today. But foreigners can’t acquire everything, presenting opportunities with these discounted stocks to buy.
- Southwest Airlines (NYSE:LUV)
- Arrival (NASDAQ:ARVL)
- DocuSign (NASDAQ:DOCU)
- Lemonade (NYSE:LMND)
- Duolingo (NASDAQ:DUOL)
- Vroom (NASDAQ:VRM)
- Cipher Mining (NASDAQ:CIFR)
While the idea of scooping up discounts during this heightened period sounds appealing, be warned that it appears the smart money is exiting equities. And it wouldn’t be the first time they had the jump. I’ve said it before and I’ll say it again: don’t engage these stocks to buy with money you can’t afford to lose.
Stocks to Buy: Southwest Airlines (LUV)
That I’m starting off this list of stocks to buy with an airliner should tell you everything you need to know about the rest of the article. When I say these are speculative ideas, I’m not joking. So for the third time to keep the lawyers and any lurking regulatory agents happy: don’t buy with money that you’ll need later.
While I’ve generally been pessimistic about the airline industry over the past 2 years, Southwest Airlines might make sense for risk-tolerant speculators. Don’t misread this: I’m probably not going to join such folks anytime soon. However, if I had to acquire an airline stock right now, I’d go with LUV.
Primarily, I’m encouraged (for lack of a better word) with the underlying social elements behind retail revenge. It’s not just about people going out and spending the money they saved up through government stimulus and not commuting. Rather, American consumers want to go out and reclaim their social lives.
Considering that Southwest is largely focused on domestic routes, it narrows its unknown variables. In contrast, companies that are tied to international routes may face varying degrees of Covid-19 mitigation protocols. Therefore, LUV might be worth picking up heading into 2022.
Easily representing one of the most exciting segments in the global markets, electric vehicles offer both economic opportunities and the ability to address increasingly worrying climate change. As well, because electric vehicles feature fewer moving parts, they’re pound-for-pound cheaper to operate due to lower maintenance costs. That has sparked interest in fresh EV enterprises such as Arrival, which provides next-generation passenger vehicles.
But its ambitions go much further. As a November 2021 article from Reuters stated, Arrival “unveiled a new prototype of an electric bus that it hopes to begin producing next year to sell at around the price of a conventional diesel bus.” Since initial upfront costs of electric buses have long been an impediment to the transportation method’s integration, Arrival appears to have the cutting edge.
Unfortunately, the market doesn’t seem to believe in the company’s aspirations. Over the trailing month since the end of the December 29, 2021 session, ARVL stock is down nearly 16%. Over the trailing half-year period, it’s down almost 50%. Part of the issue stems from real-world tests that challenge electric buses’ viability.
Still, if Arrival provides the link to such viability, ARVL could be one of the biggest stocks to buy on discount.
Stocks to Buy: DocuSign (DOCU)
When the coronavirus pandemic initially hit us, fear wracked American society. Because the enemy was invisible — and hardly understood at the time — people had few practical options other than hunkering down and limiting points of vulnerability. Therefore, it wasn’t a surprise that DocuSign was a pandemic winner. Marketed as the No. 1 electronic signature and agreement cloud platform, DocuSign helped limit physical contact.
Naturally, as people became acclimated to the new normal, the immediacy or the fervor for DocuSign’s solutions became less pronounced. Nevertheless, it was still one of the more desirable and relevant stocks to buy. Then, the technology firm released its earnings report for the third quarter and everything shifted downward.
As Investor’s Business Daily reported, shares slipped after the company’s “October-quarter billings fell short of expectations and revenue guidance for DOCU stock missed estimates.” It appeared that management struggled to adapt to shifting conditions in the post-Covid economy, thus spooking investors.
Over the trailing month, DOCU is down 38%, making it a tough pill to swallow, even among contrarian stocks to buy. However, future breakouts and semi-permanent changes in social behavior could help DocuSign.
While Lemonade entered the public arena during the midst of the Covid-19 crisis, many people met its initial public offering with tremendous enthusiasm, sending shares flying higher. Much of the bullish thesis centered around Lemonade’s core business, which basically involves digitalizing insurance products. In short order, people — particularly the younger demographic — can enjoy renters, homeowners, car, pet and term life insurance.
The company made insurance fun. Yet soon after its IPO, LMND entered a lull period before the speculative fever that began around Thanksgiving 2020 shot the equity unit into orbit. Since then, however, LMND has been a drag.
Lemonade was down 65% in 2021. Unfortunately, the volatility is not just a matter of capricious timing. Instead, LMND has also lost 20% in the trailing month, which should raise up red flags. You might scoff at such volatility and consider it one of the most-discounted stocks to buy. But you also don’t want to ignore the pain.
However, a cynical reason might exist for the tech-driven insurance firm. Housing prices continue to swing higher, which means Lemonade’s rental insurance programs may be in high demand.
Stocks to Buy: Duolingo (DUOL)
One of the more recent IPOs for which I had high hopes for, Duolingo seemed to enjoy supportive fundamentals. For instance, shifting demographics in the U.S. suggest that we could be a legitimate multilingual society, such as our neighbors up north.
“But the implications are even bigger for DUOL stock on the global scale,” I wrote for Benzinga. “So, while English is the predominant language of the internet, Chinese is a close second. And this dynamic reflects in the economic power structure of the world. Currently, the U.S. is the world’s largest economy but that crown will likely not last forever. In fact, a BBC report indicated that China could overtake the U.S. by 2028, a pushed-up date from prior forecasts due to the COVID-19 impact.”
Therefore, “Americans and English-only speakers need to play catch-up to compete with an increasingly multilingual business environment.” Further, Duolingo provides bite-sized lessons tailored perfectly for the new normal.
Unfortunately, investors don’t view it that way. As well, the lack of profitability makes DUOL riskier at a time when the market is exiting risk. Still, its discount makes the business a bit more exciting because we’re still behind in language learning (among other things).
One of the riskiest ideas not just on this list of stocks to buy but in any context, investors theoretically should be excited about Vroom. An online retailer of used vehicles, Vroom offered during the worst of the pandemic a contact-limited transaction in what would otherwise be a high-contact business deal. Through the company’s service, consumers can have their ride delivered right to them.
Although the business model enjoys solid growth — Vroom generated $897 million in Q3, up 178% year-over-year — profitability has long been a concern. Notably, its retained earnings continues to widen into negative territory, perplexing investors. As everyone knows, the pricing of used cars hit an unprecedented bull market shortly after the pandemic disrupted global supply chains.
Now, common wisdom tells us that supply chains will improve, which means that VRM’s loss of 26% over the trailing month (and a staggering 76% over the trailing half year) is well justified. However, it’s also important to note that people can’t put off car buying indefinitely since transportation is obviously vital.
Plus, the Wall Street Journal reports that Americans are holding onto their cars for longer, meaning that many drivers may be forced to buy (due to breakdowns) irrespective of record-breaking prices.
Stocks to Buy: Cipher Mining (CIFR)
With my last idea for stocks to buy on discount, I’m going to present a wildly risky company in the form of Cipher Mining. As you might deduce from the brand name, Cipher focuses on cryptocurrency-mining initiatives, specifically involving industrial scale. In theory, this scale combined with the tremendous popularity of virtual currencies makes CIFR intriguing.
As well, investing in crypto-related stocks to buy — as opposed to individual cryptos directly — present key administrative advantages. No, you wouldn’t have access to 24/7/365 trading, which is a core benefit of participating in cryptos. At the same time, by acquiring equity in mining firms, you’re purchasing a business enterprise. Such shares are much harder to steal (or lose) since they enjoy protections and insurance by centralized institutions.
However, crypto-mining stocks can be among the most volatile among equity-based opportunities. Further, the crypto market itself is hurting due in part to options expiry dates and possibly tax-related considerations. Thus, if the crypto market tanks in 2022 — not an unthinkable proposition — then CIFR will probably collapse.
Then again, the opposite may be true so if you’ve got some loose change from the slot machine, CIFR could make for an entertaining pull of the lever.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.