As we enter 2022 and reflect on the year that was, investors may have mixed emotions. 2021 was an exhilarating year, as many hot stocks flew and many fell back to earth. Some that dipped alongside other hyper-growth stocks may not have seen corrections that were warranted. For those seeking relative value in a rather overvalued market, buying the dip on such stocks may be a fruitful long-term strategy.
The question is: How do investors differentiate between the wheat and the chaff? It’s not as easy as it looks.
There are a few places to start. Fundamentals are always important. The competitive positioning of companies is also worth considering. Additionally, the outlook for these stocks over the medium- to long-term is important.
Looking at these above factors, the following seven stocks certainly look intriguing. These companies each have impressive growth profiles, strong market positioning and appealing medium- to long-term outlooks. However, each of these companies has been sold off to some degree of late.
Let’s dive into why these hot stocks may be worth a buy on this recent dip:
- Moderna (NASDAQ:MRNA)
- Target (NYSE:TGT)
- Home Depot (NYSE:HD)
- Apple (NASDAQ:AAPL)
- International Business Machines (NYSE:IBM)
- Amazon (NASDAQ:AMZN)
- Spotify (NYSE:SPOT)
Hot Stocks: Moderna (MRNA)
As the world faces the impacts of yet another Covid-19 variant, the economic growth many may have taken for granted in 2021 is under siege. However, there are a few companies that directly benefit from the continuation of the pandemic. From this angle, these stocks may be viewed positively as a sort of coronavirus portfolio hedge.
As one of the leading Covid-19 vaccine manufacturers, Moderna’s positioning in the market remains impressive. One of the few vaccines to be accepted in the U.S., Moderna’s MRNA-based vaccine is generally considered to be one of the best Covid innoculations.
This company has gained impressive market share not just domestically, but also abroad. As of Jan. 4, it has shipped 800 million doses of its vaccine to more than 60 nations. This tripled Moderna’s cash and cash equivalents, reaching $17 billion by the end of 2021.
The past two months have not been good to Moderna shareholders. This is a stock that’s been under pressure for some time, despite the bullish news of booster shots being approved for adults ages 18 and older. Additional approvals of Covid-19 vaccines for youth — and the likelihood that we’ll need more boosters on an ongoing basis — improve the outlook for this stock over the medium-term.
For investors looking for a growth buy with the proven potential for incredible returns, MRNA stock is one to think about on this dip.
Target is a retail giant which has, on the whole, done incredibly well. This is a stock that’s only 15% off its all-time high set late last year. However, there’s reason to believe Target has more room to run should the economy continue to pick up steam.
That’s because its business model is deeply engrained in American life. Three out of every four people living in the U.S. resides within 10 miles of a Target location. As far as companies with a moat around their core business go, Target is certainly worth considering for bulls on the U.S. retail landscape in the coming years.
This is also a company that’s generally resistant to rising interest rates. With impressive cash flows and growing margins, TGT stock is starting to look much more attractive. According to its third-quarter report, digital sales were up 29% year-over-year (YOY). Revenue for Q3 rose 13%, reaching $25.3 billion.
Overall, Target is moving in the right direction. While hot right now, this is a stock that could be worth buying on any sort of prolonged dip from current levels.
Hot Stocks: Home Depot (HD)
Another top retail stock, I’ve been bullish on Home Depot for some time. The largest home improvement retailer in the U.S. has also been on an impressive run of late.
Now, many attribute this incredible performance to the pandemic. Being stuck at home, many of us noticed those pesky tasks around the house we never got to while we spent most of our day outside our homes. It turns out forced time at home can be a good thing for home improvement retailers — who would have figured?
That said, there are many who believe Home Depot’s recent performance wasn’t a one-off. Homebuying activity remains elevated as many millennials search for their first home. And with general economic activity picking up, there’s a lot to like about Home Depot’s outlook from here.
This company’s recent quarterly earnings speak to the value these near-term tailwinds have had for this business. The company’s sales growth of nearly 10% YOY and total revenue of $36.8 billion is incredible.
What’s more impressive is that net earnings rose by 20%. In other words, Home Depot has found a way to become ultra-profitable in a time when commodities have taken off. For long-term investors, that’s a business model worth liking.
Now, we come to what is certainly the largest — and possibly the best — company in the world. Apple is the tech stock every investor wishes they bought 10 years ago. It has seen high-profile investors such as Warren Buffett step in to buy up as much stock as possible in the past — and with good reason.
Apple has what could be viewed as the “perfect” set of characteristics. This is a (partially) luxury brand with a loyal consumer base and absolutely incredible margins. Over time, it has found a way to expand into services and increase margins on its existing product lines. Doing so has resulted in Apple becoming an absolute cash flow king.
Apple is a leader in many regards and recently surpassed the $3 trillion market capitalization level — the first company to ever do so. Being on such a run, investors may shy away from this stock at these levels.
The thing is, Apple isn’t extravagantly overvalued at its current price. Rather, factoring in the cash on the company’s balance sheet and its projected growth rate, AAPL stock’s valuation looks fair for the growth it provides.
Long-term investors looking for hot stocks to hang their hat on can’t go wrong owning Apple over the long-term.
Hot Stocks: International Business Machines (IBM)
It’s perhaps hard to qualify International Business Machines (IBM) as a “hot stock” in any conversation. That’s because this stock has been relatively docile over the past decade, actually losing value for shareholders.
However, with strong dividends and a long-term outlook of impressive growth among computing giants, there’s a reasonable thesis to own IBM stock. From a fundamentals standpoint, investors have to like the 24x price-to-earnings (P/E) ratio and the 4.9% dividend yield. That sort of value is very hard to find in the tech sector today.
Zooming into the chart a bit, things are looking a lot better for IBM. The stock is up more than 8% over the past month alone and has become more appealing to value investors.
Accordingly, for those expecting a continued rotation into value away from growth, IBM is an interesting stock to consider. The company has estimated it will bring in $35 billion in free cash flow over the next three years. That’s mainly due to its success in the cloud computing sector.
Thus, there may still be a little room for hope around this company’s growth prospects. For now, IBM remains an interesting stock for investors to keep on their watch list.
One of the hottest stocks in the market in recent decades has to be Amazon. This e-commerce juggernaut has absolutely dominated the online retail marketplace, becoming one of the largest U.S. players in this regard. However, AMZN stock has dipped 14% from its recent all-time high, providing an intriguing entry point for investors at these levels.
Much of this success has to do with Amazon’s dominance in the cloud computing segment. Currently, it is one of the top global players in this space with an enviable position in the market.
Among the top mega-cap stocks, Amazon has continued to grow its top line in incredible fashion. Indeed, many investors did not see this coming, hence the stock’s outperformance since the beginning of the pandemic.
Like some of the other names on this list, Amazon has benefited from Covid-19. However, the secular growth trends underpinning AMZN stock remain strong. This is a company I have a very bullish outlook on over the long-term.
I would consider buying on any sort of meaningful dip below $3,000 per share. Considering the interest-rate-driven headwinds of late, anything’s possible in this regard.
Hot Stocks: Spotify (SPOT)
Finally, we have Spotify. One of the hottest stocks of the pandemic, SPOT shares absolutely skyrocketed in late 2020 as investors sought out stay-at-home plays.
However, over the past year, Spotify has since given up much of these pandemic-driven gains. Currently, SPOT stock is down more than 40% from its 52-week high.
For those looking for growth stocks at an impressive valuation, Spotify may be worth considering. Many still believe this stock is overvalued on the basis of rising interest rates and a tech-driven selloff. However, those looking to buy the dip on some blue chip names may want to consider this mid-range player. With a market capitalization just under $45 billion, Spotify is a company with the ability to grow into its valuation.
Now, the fact that this company brought in $2.5 billion in Q3 revenue suggests Spotify is trading around four times annualized revenues. That’s not incredibly cheap, but it’s also not incredibly expensive. Thus, a shift in market sentiment could take Spotify on a nice run this year. It all depends which way the wind blows.
On the date of publication, Chris MacDonald 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 MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.