Last year, growth stocks performed significantly better than value stocks. The markets have been volatile lately, but it seems like the trend is starting to favor value stocks. Recent data suggests that this change in momentum will accelerate over time. It is becoming more difficult to pick out top stocks for the new year in this environment.
Investors are human and have biases. Some people like paying healthy dividends, while others may be growth-oriented, seeking rapidly expanding companies with potential for high returns on investment.
Growth stocks offer a greater potential for future return, but they also carry an equal amount of risk. The main concern with these investments is that the growth you’ve seen won’t continue into your future — which means it’s important not only to consider what has happened so far when investing in them but how likely this company will be successful long-term too.
The recent rise in borrowing costs has caused many investors to reevaluate their portfolios. This is especially true for those who trade on Wall Street, where the pressure isn’t thanks solely to material concerns about our economy or fears surrounding Covid-19 variants. Instead, many traders are convinced the Federal Reserve is about to hike interest rates to combat inflation.
That is leading to a sharp sell-off in growth stocks. Many of these companies are excellent prospects. Hence, it is the ideal time to invest in high-growth top stocks. They are down for now. But it is only a matter of time before they make their inevitable comeback.
- Nextdoor (NYSE:KIND)
- McDonald’s (NYSE:MCD)
- Caterpillar (NYSE:CAT)
- Park Hotels & Resorts (NYSE:PK)
- AT&T (NYSE:T)
- Salesforce (NYSE:CRM)
- Beyond Meat (NASDAQ:BYND)
Top Stocks: Nextdoor (KIND)
Nextdoor is the herald for a new generation of neighborhood connectivity, with 33 million active members across America. The company went public through a special purpose acquisition company (SPAC) merger in 2021 and has seen unprecedented success ever since.
Over the last decade, social media has permeated all our lives. There would be a few areas left where we do not see its impact. The relationship between social media and depression has been a topic of great debate. Some say that the use increases feelings such as loneliness, while others claim it makes people feel less isolated in their daily lives because they can share experiences online.
Nextdoor is an interesting company looking to change the dynamic of how we use social media. It is an app that connects people in real-life neighborhoods with one another. The company provides private online networks for continued communication and updates about what’s happening near your house, helping build stronger communities. It’s a fast-growing company, expanding both locally and internationally.
The third quarter saw a 66% increase in revenue to $52.7 million, and the average revenue per user increased 38% year over year to $1.61, with the majority of that increase coming from new users; the number of weekly active users (WAU) reached new heights this past quarter with a 20% year-over-year increase to 33 million.
Like many social networks, Nextdoor deals with the same problems that plague platforms when they become huge. But now its position as one such service means it has more responsibility than ever before. However, with an experienced hand like CEO Sarah Friar at the helm, there is little cause for concern. Friar’s impressive resume includes six years as the CFO of Square and a stint as an analyst at Goldman Sachs.
McDonald’s Corp. (MCD)
McDonald’s is a huge, global corporation that has been around for decades, and it still thrives today. It serves as an inspiration to many people worldwide because of its success. As such, it is perhaps one of the safest stocks out there, with consistent growth and dividend income. The global giant that is McDonald’s has 35,000 locations worldwide, and 93% of them are franchisees. This means they receive rent and royalty payments from their stores which insulated this company against any inflationary pressures.
That puts McDonald’s in a great position. The consumer price index increased at a 7% year-on-year pace last month, the largest increase since June 1982. Inflation is a real problem, and it is hitting home hard. Therefore, McDonald’s, traditionally seen as the food for budget-conscious consumers, will continue to thrive in this atmosphere. In an earnings call, McDonald’s reported a dramatic increase in profits this quarter because their menu prices have gone up while costs remained low. McDonald’s is doing a fine job of offsetting increased labor and commodity costs by raising prices on its menu.
The company reported a fiscal third-quarter profit of $2.86 per share, up from last year’s figure of $2.35, and McDonald’s just announced that they are raising their forecast for systemwide sales growth in 2021. The company’s net sales increased 14% to $6.2 billion in the quarter, surpassing expectations significantly. This is due largely to worldwide same-store sales growth of 12.7% from the year-ago period.
Despite the impressive performance and strong outlook, the stock was up just 22.1% last year. That means there is plenty of upside here that you can exploit.
Top Stocks: Caterpillar (CAT)
In today’s world, few companies can match the size of Caterpillar. The firm is one in a select group to produce both construction and mining equipment on an international scale with operations all over our planet.
Caterpillar is expected to have a profitable year, with its earnings and free cash flow projected at an all-time high. This will create significant value for investors due to the global economy whirring back to life. Even in America, things are looking up for Caterpillar. The $1.2 trillion infrastructure bill signed into law by President Joe Biden on Monday will bring new federal investments and create jobs over five years, touching everything from bridges to broadband internet systems with its promises of improved cities around America. The world’s largest construction equipment manufacturer will, naturally, benefit from these initiatives.
In the third quarter of 2021, Caterpillar announced sales and revenues that had grown by 25% compared with $9.9 billion in 2020. The revenue increased primarily due to demand for equipment and services at higher end-user levels driving the growth. Third-quarter profits were up significantly from last year, with a whopping $2.66 per share in profit for the quarter compared to just under two dollars back then. In addition, the company bought back $1.4 billion of shares and disbursed dividends totaling $0.6 billion.
Shares were up 14.47% last year, with the stock trading at 17.12 times forward price-to-earnings.
Park Hotels & Resorts (PK)
Park Hotels & Resorts is one of the biggest hotel players, with properties all over America. It specializes in luxury goods and services for travelers at any price, from budget-friendly rates to five-star accommodations. The company was formed as an offshoot of Hilton Worldwide back in 2017. Hilton’s CEO, Christopher Nassetta, evaluated a corporate spin-off of their $13 billion real estate portfolio. This plan was part of Hilton’s strategy to move towards an “asset-light model,” which would enable rapid international growth and take advantage of the lack of taxes on REITs or real estate investment trusts — REITs have to distribute at least 90% of their profits as dividends, or else they will lose tax-exempt status.
Owing to the nature of the pandemic, it was only natural that the hotel industry would come under fire. Revenues fell sharply in 2020, leading to a substantial loss for the hotel REIT. The situation has improved remarkably in the latest few quarters. Third-quarter highlights include a strong, positive RevPAR number that shows the company is growing steadily and returning to profitability. Funds from operations (FFO) attributable to stockholders for the quarter was $5 million — a 112.2% improvement from second-quarter numbers.
The hotel REIT focuses squarely on three major markets, New York City, Chicago, and San Francisco, to power its comeback further. “I’ve been in New York three times in the last couple of weeks, and the city’s coming back to life, and it’s great to see,” CEO Thomas Baltimore Jr. said in November. Meanwhile, hotel occupancy in Chicago is still high despite the overall slow down. Corporate group bookings at Park’s hotels were about 83% of 2019 levels which amounts to around 168,000 room nights citywide.
Top Stocks: AT&T (T)
AT&T hasn’t gotten the love it deserves in the last year. In an unexpected move, AT&T announced that it plans — into their own company just a few short years after buying Time Warner Inc for $108 billion. AT&T announced that they had signed a merger agreement with Discovery (NASDAQ:DISCA). The two companies will now share some of their assets as part of this deal and create one “standalone global entertainment company.” As a result of the agreement, AT&T would receive a cool $43 billion in the all-stock transaction that it will use to reduce debt and invest in broadband.
AT&T plans to spend $24 billion on capital expenditures in 2022. This investment will go toward 5G and fiber broadband networks. That comes as a welcome change because the telecommunications giant could not focus squarely on this space in the last few years. AT&T plans to cover 200 million people with its 5G C-band network by year-end 2023, and they are investing to reach 30 million customer locations this coming 2025.
Management cut AT&T’s dividend by half last year, but the company assured investors that it would still pay out an annual distribution. However, following cutting the payout, the company will lose its Dividend Aristocrats status. Hence, many AT&T shareholders are left wondering whether they should keep investing in the stock moving forward. AT&T’s debt load is set to decrease after they shed some of their most lucrative divisions and use the proceeds and the savings from the dividend cut, making them more competitive with T-Mobile (NASDAQ:TMUS) and Verizon (NYSE:VZ).
Salesforce offers excellent customer service and helps businesses improve their marketing strategy with its powerful applications. They provide CRM (customer relationship management) services for both individual consumers and small companies and enterprise software. CRM’s software helps businesses organize and handle sales operations while also managing customer relationships.
The Salesforce ecosystem and community are growing, which means that CRM functionality is expanding too. One way to increase their acquisition rates is by acquiring new companies within this space as they come along with valuable skillsets or experiences — something else important for reaching scale. Salesforce is a company that provides “360-degree view of customer” services.
It is the perfect alternative to Adobe (NASDAQ:ADBE), Oracle (NYSE:ORCL), and Microsoft (NASDAQ:MSFT). Salesforce competitors provide various components that make them stand out from the rest and offer an excellent way to manage all aspects of customers’ needs. Salesforce has made some of the biggest acquisitions in recent years, including Slack for $27.7 billion, Tableau at $15.7 billion, and Mulesoft for $6.5 billion. The Salesforce empire has always been about more than just CRM. They’ve used their acquisition strategy to integrate innovative technologies into the platform, which benefits every customer with exciting new features and functionality that they can’t get anywhere else.
However, Salesforce is not doing so well recently. The stock continued its downward spiral following a new omicron coronavirus variant and a tech-specific sell-off in December. But that means a quality business with a wide moat is available at a discount.
Top Stocks: Beyond Meat (BYND)
Beyond Meat is a company that produces plant-based substitutes for beef, pork, and poultry. The company aims to help reduce pollution from these industries while also helping people live healthier lives by eating more vegetarian meals themselves or providing them access at affordable prices. Last year, Beyond launched its new line of chicken in Canadian and U.S restaurants and grocery stores across North America.
Nevertheless, the stock has not done well in the last six months. That is because of sluggish sales and muted forecasts. Beyond is a company that thrives on retail sales. The segment generates 74% of its total revenue, while foodservice accounts for 26%. Analysts believe the key for the company is to produce their product at a lower cost to battle McDonald’s.
But the value proposition is there. Millennials and Generation Z believe in a healthier diet. That leads to marketers and businesses honing on any area that could lead to a healthy lifestyle. Beyond Meat will do well in this environment.
On the publication date, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. You can check out his analysis on InvestorPlace and TipRanks.