Every year, the major Wall Street firms we cover here at 24/7 Wall St. come out with their lists of stocks that they feel will be the top performers for the coming year. Despite the recent selling since the Federal Reserve decided to do something about the rampant inflation consumers and businesses are facing, the three major stock indexes are still up near the 20% level. Over the past five years, the markets have averaged a 17.5% gain, so almost regardless of how investors were positioned, they should have done much better than historically.
However, 2022 may be the year when the going gets tougher. Interest rates will be going higher, and companies will face much tougher comparisons than last year. With the median S&P 500 near the highs posted during the dot-com bubble, it is pretty clear stocks are not cheap.
A new BofA Securities research report features 11 stock picks for 2022, one stock for each of the 11 Global Industry Classification Standard sectors. The analysts noted this when discussing the selection process:
We selected these stocks based on alignment with themes in our 2022 Year Ahead (including High Quality, inflation-protected yield, Value over Growth and/or FCF generators) plus consideration of factors such as fund positioning, our analysts’ 2022 earnings outlook versus consensus, ESGMeterTM and more. Selected stocks are Buy-rated by our fundamental analysts; we also considered our analysts’ views in making our decisions.
While all 11 stocks are rated Buy, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Communication Services: Disney
This company is a top consumer media company with multiple streams of income to push revenue. Walt Disney Co. (NYSE: DIS) is the largest publicly traded media and entertainment company and global leader in producing high-quality, branded family entertainment.
Key assets include its theme parks (six locations globally), the ABC TV network, ESPN, FX, National Geographic and other cable networks, iconic film studios (Disney, LucasFilms, Marvel, Pixar, 20th Century Fox), Star India, direct-to-consumer streaming platforms (Disney+, 66% Hulu stake and ESPN+) and consumer products.
The BofA Securities price target is $192. Walt Disney stock has traded as high as $203.02 in the past year but closed on Friday at $148.76 a share.
Consumer Discretionary: Borg Warner
Shares of this leading original equipment manufacturer have solid upside potential. BorgWarner Inc. (NYSE: BWA) develops, manufactures and sells engineered automotive systems and components primarily for powertrain applications worldwide. The company’s Engine segment offers turbochargers, turbo actuators and timing systems, such as timing chains, variable cam timing products, crankshaft and camshaft sprockets, tensioners, guides and snubbers, HY-VO front-wheel drive transmission chains and four-wheel drive chains.
The analysts note that the company is expected to be an inflation and capital expenditures beneficiary, and they point out that Wall Street has neglected the company’s high quality, strong free-cash-flow yield of 8%.
Investors receive a 1.56% dividend. BofA Securities has a $66 price target, well above the $53.61 consensus target. The stock closed on Friday at $43.63.
Consumer Staples: Mondelez
This sector giant makes good sense for conservative investors. Mondelez International Inc. (NASDAQ: MDLZ) manufactures and markets snack food and beverage products worldwide. It offers biscuits, including cookies, crackers and salted snacks; chocolates, and gums and candies; powdered beverages and coffee; and cheese and grocery products.
Its primary brand portfolio includes LU, Nabisco and Oreo biscuits; Cadbury, Cadbury Dairy Milk and Milka chocolates; Trident gum; Jacobs Kaffee; and Tang powdered beverages.
Mondelez sells its products to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, gasoline stations, drug stores, value stores and other retail food outlets through direct store delivery, company-owned and satellite warehouses, distribution centers and other facilities, as well as through independent sales offices and agents.
Shareholders receive a 2.16% dividend. The $70 BofA Securities price target is in line with the $70.52 consensus target. Shares ended Friday trading at $64.96.