7 Stock Picks That Are Killing It Despite the Dicey Economy

  • All seven S&P 500 companies have raised 2022 guidance in the past 60 days, making these stock picks worth it.
  • Penn National Gaming (PENN): TheScore will score in Ontario.
  • PepsiCo (PEP): People can’t get enough Frito-Lay.
  • Molina Healthcare (MOH): Molina’s results deserve a premium valuation.
  • Fortune Brands Home & Security (FBHS): The coming separation will be amicable.
  • Advanced Micro Devices (AMD): CEO Lisa Su continues to deliver like few others. 
  • Albemarle (ALB): The world can’t get enough lithium. 
  • Mid-America Apartment Communities (MAA): Residential rental properties never go out of style. 
Hand holding a chart of hot stocks that are going up in value
Source: Shutter_M / Shutterstock

After Snap (NYSE:SNAP) snapped its stock on May 24 due to lower guidance, investors were left looking for stock picks that weren’t literally for the birds. 

Two words have been bantered about in recent weeks that were unfathomable just six months earlier: Stagflation and recession. While neither is inevitable, we could experience both over the second half of 2022 and 2023. 

Stock selection has become critical. You can no longer throw a dart at the board and expect it to be a winner. The bull market is a thing of the past. Future returns won’t be so easy to come by. 

If a company is raising guidance in this economic environment, they’re very confident their business models and strategies can hold up to the ravages of inflation and slower growth.

All seven of these stock picks from the S&P 500 have raised their earnings or revenue guidance in the past 60 days. Here’s why each is worthy of your consideration.   

PENN Penn National Gaming, Inc. $31.66
PEP PepsiCo, Inc. $169.99
MOH Molina Healthcare, Inc. $301.64
FBHS Fortune Brands Home & Security, Inc. $69.94
AMD Advanced Micro Devices, Inc. $99.43
ALB Albemarle Corporation $257.29
MAA Mid-America Apartment Communities, Inc. $181.02

Top Stock Picks Right Now: Penn National Gaming (PENN)

On May 5, Penn National Gaming (NASDAQ:PENN) raised its full-year guidance for both revenue and earnings. 

On the top line, it expects sales of $6.35 billion in 2022 at the midpoint of its guidance. On the bottom line, it expects earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.94 billion at the midpoint.

The casino and racetrack operator’s Q1 2022 record revenue of $1.56 billion included $1.29 billion from gaming, which saw a 19.3% increase. A big success during the first quarter was its interactive division, which includes theScore, its $2 billion Canadian acquisition from 2021. 

I expect its Ontario gaming revenue to contribute to the company’s future revenue significantly. So, too, does CEO Jay Snowden:

“We are driving momentum at our interactive segment with ongoing sports betting and icasino growth in the US, and the successful launch of mobile sports betting and icasino in Ontario on 4 April on theScore’s proprietary player account management system and bonusing engine,” Snowden stated, according to iGaming Business.

PepsiCo (PEP)

PepsiCo (NASDAQ:PEP) delivered strong quarterly results at the end of April, including 14% organic revenue growth to $16.2 billion and a 149% increase in net income to $4.26 billion.

They were so good that the company upped its 2022 organic revenue growth by 200 basis points to 8%. CEO Ramon Laguarta remarked that the results in Q4 2021 and Q1 2022 were better than they’ve historically experienced in these quarters and much better than planned, forcing them to up guidance.

That’s a good problem to have.

The only downer from its latest earnings report was the $241 million charge due to the Russia/Ukraine war. Russia accounts for about 4% of its revenue, so for PepsiCo to raise its sales guidance for 2022 despite the setback is excellent news if you own PEP stock.

Through Q1 2022, PepsiCo’s trailing 12-month (TTM) free cash flow (FCF) is $7.5 billion. While PepsiCo’s FCF yield of 3.2% isn’t cheap, you have to pay up for quality in a very shaky market.  

Top Stock Picks Right Now: Molina Healthcare (MOH) 

Molina Healthcare’s (NYSE:MOH) Q1 2022 report at the end of April had a sprinkling of good and bad. On the plus side, both its premium revenue and adjusted net income per share experienced double-digit growth. A downer was the medical care ratio (MCR) increased by 30 basis points to 87.1%, but well within its historical target.

At the end of March, it served 5.1 million members, 10% higher than a year earlier. Covid-19 remained a significant headwind in the quarter.

However, CEO Joseph Zubretsky was very happy with its performance in the first quarter at the end of the day. As a result, the health insurer upped its guidance for premium revenue in 2022 to $29.25 billion, $750 million higher than its previous guidance. 

As for adjusted net income per share, Molina upped its guidance by 10 cents in 2022 to at least $17.10. 

I recently recommended Molina because it continues to outperform its health insurer peers considerably. It is also cheaper than many of its peers, with a 10.5% FCF yield ($1.83B FCF divided by $17.49 B market cap) for the TTM through Q1 2022.  

Fortune Brands Home & Security (FBHS)

Fortune Brands Home & Security (NYSE:FBHS) had a bunch of good news to report on April 28. 

Not only did it report Q1 2021 sales growth of 8% over last year, but it also delivered operating income growth during the quarter. As a result of its solid quarter, the company raised its EPS for the entire year by five cents to $6.50 at the midpoint of its 2022 guidance. It also announced a $750 million stock buyback during the first quarter. 

As of Q1 2022, FBHS had TTM FCF of $325.2 million and an FCF yield of 3.6%. I’d like to see this number above 4%. However, the raised guidance ought to get it there in subsequent quarters. 

The biggest news had little to do with quarterly earnings. 

The company announced that it intends to separate its Cabinets business from its Water Innovations and Outdoors & Security business. It plans to complete the separation into two separate public companies within 12 months. CEO Nicholas Fink will run the latter business while the current head of its Cabinets business will become its CEO.

This move ought to add value for shareholders. 

Top Stock Picks Right Now: Advanced Micro Devices (AMD) 

If you follow the semiconductor industry, you know that Advanced Micro Devices (NASDAQ:AMD) CEO Lisa Siu is one of the best. In early May, AMD reported very healthy quarterly results that included an 88% year-over-year increase in its Enterprise, Embedded & Semi-custom unit due to higher sales of its EPYC server processors.  

Overall in Q1 2022, AMD had 22% sequential sales growth to a record $5.89 billion. On the bottom line, its EPS of $1.13 was 22 cents higher than analyst expectations and 21 cents higher than Q4 2021. 

As a result of the strong results, it generated record FCF in the quarter of $924 million. It now has TTM FCF of $3.31 billion and an FCF yield of 2.1%, which is very good compared to what it’s traded for in the past. 

Business is so strong that AMD raised its full-year sales guidance by $4.8 billion to $26.3 billion. It also expects its gross margin in fiscal 2022 to be 54%. 

Down more than 36% year-to-date, AMD’s valuation is cheaper than it’s been since 2018.  

Albemarle (ALB)

I have a friend who frequently reminds me when we talk about electric vehicles that there is a shortage of lithium and how the world will need a lot of it if it wants to electrify its transportation infrastructure.

In early May, this producer of lithium, bromine and other specialty chemicals, raised its 2022 guidance for sales and adjusted EBITDA in 2022. It raised its guidance because of ongoing demand for its products combined with rising prices for both lithium and bromine. 

Before the ink had dried on its Q1 2022 press release, the company Albemarle (NYSE:ALB) raised its guidance for the second time in less than a month. On May 23, Albemarle bumped its 2022 sales from $5.4 billion at the midpoint of its previous guidance to $6.0 billion, a $600 million increase in less than three weeks. At the same time, it bumped adjusted EBITDA by $500 million to $2.35 billion.

In the chemicals business, you have to learn to ride the wave. Albemarle is on the Big Kahuna right now.

Top Stock Picks Right Now: Mid-America Apartment Communities (MAA) 

I must admit that I know very little about Mid-America Apartment Communities (NYSE:MAA). However, after the real estate investment trust (REIT) upped its 2022 guidance at the end of April, I’ve put it at the front of the line. 

Like its name would suggest, it buys, renovates, manages, and redevelops apartment communities in the Southeast, Southwest and Mid-Atlantic regions. It goes where the growth is. Its top three markets include Atlanta, Dallas and Tampa. 

On April 27, it reported Q1 2022 results. EPS was more than double a year ago at 95 cents, while core adjusted funds from operations (AFFO) jumped 20% YOY. 

“Results for the first quarter were ahead of expectations. Continued strong demand for apartment housing is supporting solid rent growth, high occupancy and low resident turnover. Leasing traffic across our portfolio continues to accelerate and we are carrying strong pricing momentum into the busy summer leasing season,” stated CEO Eric Bolton in its press release. 

Business is so good it upped its guidance for 2022. 

On the top line, it expects revenue growth of 11% from its rental properties, up 200 basis points from its previous guidance. As for its core AFFO, it now expects $7.30 a share, up from $7.13 previously. 

You’ve got to love this REIT.  

On the date of publication, Will Ashworth 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.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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