An increase in interest rates is looming due to higher inflation, supply-chain issues, lofty stock valuations and now the super-contagious omicron variant of Covid-19. As a result, forecasting market performance for 2022 seems more difficult than it’s been in previous years. Right now, it looks like the market is priced to perfection with a slim margin of error. Therefore, investors could benefit by keeping an eye on hot stocks.
Since March 2020, the bull market has seen returns of nearly 110% in the S&P 500 Index. Despite such a remarkable rally, we need to highlight that 93% of the index saw a selloff of more than 10% in 2021.
While Wells Fargo predicts that the S&P 500 index could hit 5,300, Morgan Stanley has a bearish outlook with a year-end 2022 target for 4,400. That suggest a decline of more than 4% from current levels.
Amidst so much uncertainty, market analysts have expressed conflicting opinions about where investor gains in the new year may come from. Market forecasts for 2022 might ultimately rely on correctly forecasting how the pandemic evolves. “The path of the economy continues to depend on the course of the virus,” the Federal Open Market Committee’s stated following the Federal Reserve meeting in December.
With that information, here are seven hot stocks that offer substantial upside to any investor portfolio in 2022:
- Analog Devices (NASDAQ:ADI)
- Applied Materials (NASDAQ:AMAT)
- Charles Schwab (NYSE:SCHW)
- Dupont De Nemours (NYSE:DD)
- Fisker (NYSE:FSR)
- Unity Software (NYSE:U)
- USCF Midstream Energy Income Fund (NYSEARCA:UMI)
Hot Stocks: Analog Devices (ADI)
52-week range: $142.25 – $191.95
Dividend yield: 1.6%
Leading our list of hot stocks to watch is Wilmington, Massachusetts-based Analog Devices. The company manufactures chips that leverage high-performance analog, mixed-signal and digital signal processing technology. The chipmaker has a leading market share in converter chips that translate analog signals to digital and vice versa.
Analog Devices announced fourth-quarter 2021 results on Nov. 23, 2021. Revenue increased 53% year-over-year (YOY) to $2.34 billion. Adjusted earnings increased from $1.44 per share to $1.73 per share. The chipmaker generated a free cash flow of $810 million during the period. Cash and equivalents ended the quarter at $1.98 billion.
On the metrics, CEO Vincent Roche said, “ADI delivered another quarter of record revenue and profits, marking a strong end to the fiscal year. Our Industrial and Automotive markets reached all-time highs and our Consumer business returned to solid growth in fiscal 2021.”
The chipmaker continues to expand its manufacturing capacity to meet the rising demand for its cutting-edge chips. In fact, Analog received more orders than it could fill during the past year, leading to a solid backlog for its products. Moreover, it has recently completed the acquisition of Maxim Integrated, further solidifying its position as a semiconductor leader.
Most of Analog’s revenue comes from the industrial and automotive markets. Factory automation is driving surging demand for sensors and connectivity options for machines, all of which require the use of ADI’s chips. Furthermore, the automotive industry’s demand for chips continues to grow rapidly due to the increasing popularity of electric vehicles (EVs).
Currently, ADI stock hovers just below $170 per share, up nearly 8% over the past 12 months. Shares are trading at 24 times forward earnings and 10 times trailing sales. The 12-month median price forecast for Analog Devices stands at $210.
Applied Materials (AMAT)
52-week range: $94.18 – $163.02
Dividend yield: 0.6%
When it comes to semiconductor manufacturing equipment, the one company that tops the list is the Santa Clara, California-based Applied Materials. It is well-known for materials and engineering solutions.
Applied Materials released Q4 2021 results in mid-November. It reported a record quarterly revenue of $6.12 billion, up 31% YOY. Adjusted net income came in at $1.76 billion, or $1.94 per diluted share, up 53% YOY from $1.15 billion, or $1.25 per diluted share, in the prior-year quarter.
“Applied delivered strong growth in fiscal 2021, with overall orders up by 62 percent year over year and Semiconductor Systems orders up 78 percent,” remarked CFO Bob Halliday. “The momentum continued as our Semiconductor Systems backlog increased during the fourth quarter from $5.5 billion to $6.7 billion, and we see this strength sustaining into 2022.”
The company stands to benefit from crucial high-growth trends, including artificial intelligence, 5G, cloud computing, the Internet of Things (IoT) and autonomous driving. In particular, Applied Materials continues to gain significant market share in process control, including wafer inspection and e-beam technology. Demand for these services should keep AMAT on your list of hot stocks to watch.
In addition, Applied Materials plays a vital role in the U.S. tech industry. The lion’s share of global chip manufacturing is based in Taiwan, so the U.S. and Europe are looking to expand their domestic chip manufacturing capabilities. This implies significant long-term growth opportunities for equipment suppliers like Applied Materials.
At present, AMAT stock is priced around $145. Over the past 12 months, it has surged 53%. Given the rising global demand for foundry and logic capacity, the company has a moderate valuation at 18.7 times forward earnings and 6.1 times trailing sales. The 12-month median price forecast for Applied Materials stock stands at $174.
Hot Stocks: Charles Schwab (SCHW)
52-week range: $50.77 – $92.32
Dividend yield: 0.8%
In addition to brokerage services, the San Francisco, California-based Charles Schwab offers asset management, wealth management, banking, and other financial advisory services. Currently, the group boasts about $8 trillion in client assets, nearly 33 million active brokerage accounts and more than 2 million corporate retirement plan participants.
Charles Schwab released Q3 2021 results in mid-October. Revenue surged 87% YOY to $4.57 billion. Further, adjusted net income grew 130% to $1.72 billion, or 84 cents per diluted share, up from $749 million, or 51 cents per diluted share, a year ago.
On the results, CEO Walt Bettinger remarked, “We generated core net new assets of $139.0 billion in the quarter, pushing asset gathering for the first nine months of the year to $396.0 billion, representing an 8% annualized organic growth rate. Total client assets ended September at $7.61 trillion, up from $6.69 trillion at year-end 2020.”
In 2021, the increase in assets contributed to high growth. Now Wall Street concurs that Schwab should benefit from rising interest rates in 2022. Net interest revenue accounted for around 45% of total revenue in Q3.
Considering the anticipated increase in interest rates and Schwab’s powerful organic growth potential, many investors are following SCHW stock closely. It currently hovers in $90 territory, and over the past 12 months, the stock price has jumped 54%. SCHW is trading at 23.3 times forward earnings and 8.5 times trailing sales. The 12-month median price forecast for Charles Schwab stock stands at $95.50.
Dupont De Nemours (DD)
52-week range: $66.37 – $87.27
Dividend yield: 1.44%
DuPont de Nemours is one of the largest chemical and specialty materials companies worldwide. It provides many synthetic components that serve automotive, electronics, construction, safety and water management industries.
The company released Q3 2021 results in early November. Revenue for the period totaled $4.3 billion, up 18% YOY. Net income stood at $391 million, or 75 cents per diluted share, compared to a net loss of $79 million, or a loss of 11 cents loss per diluted share, in the prior-year quarter. Dupont generated a free cash flow of $634 million during the quarter. Cash and equivalents ended the quarter at $1.67 billion.
DuPont is going through a transition period, shifting its focus from low-margin chemical businesses to higher-margin opportunities in sectors with long-term growth potential. In November, management announced the acquisition of Rogers Corporation for $5.2 billion.
This acquisition allows DuPont to gain exposure to secular high-growth markets, including electric vehicles, 5G and clean energy. Meanwhile, DuPont plans to divest most of its Mobility & Materials segment, including engineering polymers and performance resins products lines.
On the acquisition, CEO Ed Breen remarked, “Today we also separately announced a definitive agreement to acquire Rogers Corporation, an advanced materials provider with superior technology innovation, applications engineering expertise, and leading end-market positions.”
DD stock is currently priced just below $82 per share, up 2% in the past 12 months. Shares are trading at 16.5 times forward earnings and 2.2 times trailing sales. The 12-month median price forecast for DuPont stock stands at $96.
Hot Stocks: Fisker (FSR)
52-week range: $9.61 – $31.96
Manhattan Beach, California-based Fisker is a pre-revenue EV name that made its market debut in 2020. It has a unique asset-light business model based on contract manufacturing.
Fisker released Q3 2021 results in early November. Net loss for the period totaled $110 million, or a loss of 37 cents per share, compared to a net loss of $40 million in the previous year. Cash and equivalents ended the quarter at $1.4 billion.
After the announcement, CEO Henrik Fisker noted, “We continued to make rapid progress in Q3 2021 on our core focus, achieving program milestones that ensure we execute Fisker Ocean SUV on-time and with several segment-leading features.”
Production for the Fisker Ocean, a mid-size premium SUV, is set to begin in November. The EV will be available to consumers through a leasing package that costs $37,499, making it one of the most affordable EVs on the market. Fisker Ocean reservations are expected to increase in 2022 with the opening of experience centers.
The Ocean is sold exclusively through the Fisker app or website without a dealer network. As a result, Wall Street is interested in its low overhead costs. Further, contract manufacturing should allow the company to enhance its EV portfolio without investing in risky manufacturing capacity.
Understandably, without revenues, Fisker is a speculative EV play. FSR stock hovers in $15 territory, up 2% over the past year. The 12-month median price forecast for Fisker stock stands at $25.50.
Unity Software (U)
52-week range: $76 – $210
Unity Software offers a software platform for developing interactive experiences and creating computer-generated visuals. The company is well-known for providing an engine for video games that work across computers, consoles, smart phones and virtual reality (VR) devices.
Unity reported Q3 2021 results in early November. Revenue soared 43% YOY to $286 million. But non-GAAP loss widened to $12.1 million, or 6 cents per diluted share, compared to a loss of $8.4 million, or 9 cents per diluted share, in the previous year. Cash and equivalents ended the period at $755 million.
On the results, CEO John Riccitiello remarked, “Unity’s strong performance this quarter was driven by innovation in data science, vertical growth and making significant strides in bringing RT3D technologies and tools to as many creators and artists as possible.”
Wall Street agrees Unity should benefit from the development of the metaverse. It is swiftly gaining a solid foothold in the VR and augmented reality (AR) markets. Around 60% of all games built for AR and VR are currently utilizing its engine services.
Moreover, Unity has recently acquired the visual-effects studio Weta Digital. This new business could soon enable the company to offer digital-effects services for film, games and television.
Unity hit an all-time high of $210 in mid-November. However, it currently trades around $125, down 13% over the past year. Shares are trading at 39x trailing sales. The 12-month median price forecast for Unity stock stands at $185.
Hot Stocks: USCF Midstream Energy Income Fund (UMI)
52-Week Range: $24.32 – $32.62
Expense Ratio: 0.85% per year
Closing out this list of hot stocks to monitor is the USCF Midstream Energy Income Fund, an exchange-traded fund (ETF). It invests in U.S. and Canadian midstream energy companies, including master limited partnerships (MLPs). These energy infrastructure companies focus on transportation, storage, gathering and processing of energy.
UMI, which started trading in March 2021, has 24 holdings. Fund managers choose companies based on their income growth, balance sheet strength, distribution (or dividend) coverage and contract quality. Exposure to commodity prices is also important as it can impact share prices, especially in the short run.
The top 10 names account for around 65% of net assets of $125.2 million. Among the leading names on the roster are Targa Resources (NYSE:TRGP), Enbridge (NYSE:ENB) and Enterprise Products Partners (NYSE:EPD).
Robust MLPs with quality contracts and solid fundamental metrics tend to be cash cows that most investors love. Since its inception in March 2020, UMI has soared more than 20% and saw a record high of $32.62 in mid-October. Interested investors should consider buying at $28.50.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.