I often scan through the most frequently traded stocks to buy to find out where the Sharpe action is because that’s where the opportunity to generate alpha lies, right?
By looking at the past quarter’s volume statistics, I’ve noticed that investors have rediscovered their love for mega-cap stocks with famous names such as Ford, Apple, and co. leading the way.
I find this very exciting because it allows us to forecast the potential multi-baggers more accurately, as there’s more symmetry in the available information than among the meme stocks.
Upon embarking on my seven stock picks, I made sure that the average three-month volume of each exceeded 15 million per day and secondly searched for a mixture of value, momentum, and growth stocks. Here are seven stocks that I think are worth the love.
- Ford (NYSE:F)
- Apple (NASDAQ:AAPL)
- Bank of America (NYSE:BAC)
- Microsoft (NASDAQ:MSFT)
- Barrick Gold (NYSE:GOLD)
- AT&T (NYSE:T)
- American Airlines (NYSE:AAL)
Stocks to Buy: Ford (F)
The automotive industry has gained significant support lately as consumer spending has remained robust.
The company that’s perhaps benefited the most in the sector is Ford with the release of its F-150 Lightning outperforming estimates.
The F-150 Lightning’s impressive sales growth provides an indication of what’s ahead for Ford’s full electronic vehicle range, subsequently stimulating investor confidence.
The stock’s hot at the moment. Ford’s trading above its 10-, 50-, 100-, and 200-day moving averages, meaning that it’s likely that the stock will traverse on a sustained momentum pattern.
We’re also looking at an undervalued stock here; Ford’s currently trading below its fair market price with its price to sales and price to cash flow ratios trading at discounts worth 37.17% and 50.42%, respectively.
In my opinion, Ford stock will remain popular for the majority of the year with no indication that consumer cyclical will taper off. It’s a high-quality asset with little risk involved.
Warren Buffet recently seized upon Apple stock, which now makes up for 42.78% of Berkshire Hathaway’s public equities portfolio.
It’s easy to see why Buffet backs the stock. The company has established itself as a dominant force in both hardware and software product offerings.
It’s going to be extremely difficult for competitors to remove Apple from its throne, especially considering the $34.94 billion in cash on its balance sheet, allowing it to spend a surplus of $5 billion on R&D per year.
Apple produced a 14.44% sales to R&D ratio last year, suggesting that it’s still scaling.
Apple is trading above its 50-, 100-, and 200-day moving averages. There’re no indicators that it will have a bad 2022, making it among the top stocks to buy for investors of all kinds.
Stocks to Buy: Bank of America (BAC)
Bank of America has been the most frequently traded financial stock during the past three months, with an average daily volume of 46.678 million.
I held the stock for most of last year and I may re-invest in it this year once some additional liquidity becomes available.
I think the stock will be a beneficiary of the expected interest rate hikes this year as its loan portfolio, which makes up for 45.81% of its revenue mix, will likely skyrocket.
Banking stocks tend to perform well in higher rate environments because they’re given an opportunity to earn higher spreads in the debt markets, which in turn provides their stock with an improved risk-return profile.
The stock is undervalued with a price-to-earnings-growth ratio of 0.21, well below the value threshold of 1.00. Furthermore, Bank of America stock has formed a momentum pattern by trading above its 50-, 100-, and 200-day moving averages.
Banking stocks ought to do well this year, and Bank of America is my pick of the bunch.
There’s no doubting that Microsoft was going to be one of the top stocks to buy stock this year as a FAAMG member, but its planned acquisition of Activision Blizzard (NASDAQ:ATVI) will most likely send its trading volume to the stratosphere.
Microsoft’s acquisition of Blizzard will amount to $68.7 billion, making it the largest gaming presence on the planet.
There’s a very specific way to trade Microsoft from here on in.
First off, it’s essential to understand that the acquiring company in such a deal will usually lose value in the market before the deal completion, but this will likely retrace and overshoot once the deal is completed.
Based on the data, I can conclude that Microsoft is justifiably trading above its fair book value based on the gap between its return on equity of 19.09% and its cost of equity of 6.46%.
The Activision Blizzard acquisition will provide key growth synergies that could potentially increase the return on equity even further and maybe reduce the cost of equity as well; this could translate into justified growth in the tech giant’s book value and, subsequently its stock value.
I’d stay invested with Microsoft and gradually increase my position as we near the acquisition date in 2023. This is how I would play it, though, but investors should decide for themselves as my opinion is just intended to provide you with context.
Stocks to Buy: Barrick Gold (GOLD)
If you’re looking for mining exposure, then Barrickis probably your best bet. I love this company because of Mark Bristow’s success with running an efficient business.
Barrick has managed to increase its EBITDA by an average of 24.38% during the past three years, with events such as the acquisition of Rand Gold and the partnership with Newmont (NYSE:NEM) in the Nevada Gold mines project being the key catalysts.
Barrick has plans to mine in the Arabian shield with the intention of producing copper at the lowest cost possible to facilitate the renewable energy space.
I find this really exciting as additional copper exposure could smooth out Barrick’s topline earnings and subsequently get rid of unnecessary cyclicality.
AT&T got a lot of flack last year and understandably so considering it basically dethroned itself as the ultimate dividend aristocrat after announcing a business restructuring.
I think it’s time to replace that flack with slack. I picked this stock as part of my list after I invested in iShares MSCI USA Value Factor ETF (NYSEARCA:VLUE), a value pure play ETF.
I had a look at the ETFs holdings and noticed AT&T as its largest holding with 7.67% absolute exposure. This made me look at the stock’s prospects, where I saw that it’s currently undervalued by 20.09% and 15.51% relative to its normalized price to earnings and price to book ratios, respectively.
AT&T has also formed a solid momentum pattern lately by trading above its 10-, 50-, and 100-day moving averages. I’m backing the stock going into 2022 because it looks like we’re set for a value stocks upturn, and I think AT&T will be one of the primary beneficiaries.
Stocks to Buy: American Airlines (AAL)
I had to throw an Airline stock in here considering the proclivity of investors to buy the dip on underperforming sectors.
American Airlines suffered a drawdown of nearly 10% towards the latter stages of last year as Delta and Omicron entered the fray.
In addition, many investors sold the stock for tax-loss right-offs, and it may be that they’ll re-enter their positions this year amid a global loosening on travel restrictions.
Although the company did face suppressed flight numbers in 2020/21, it’s surprisingly undervalued on a sales basis. American Airlines stock is trading at a 2.17x price to sales discount, suggesting that investors probably oversold the stock during hard lockdowns.
I’m backing this stock to outperform this year; hedge funds have already during last year’s fourth quarter with 388.7 thousand shares being gobbled up by notable fund managers such as Louis Morre Bacon and Ken Fisher.
It’s only a matter of time before an institutional buying spree starts, which could subsequently attract a large amount of retail interest.
On the date of publication, Steve Booyens held indirect positions in all of the stocks and ETFs mentioned in this article any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve’s content for InvestorPlace includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.