5 Must-Buy Stocks at Attractive Valuation for the Rest of 2022
U.S. stock markets have been witnessing an impressive rally since the beginning of October. We are not out of the woods as inflation remains elevated. In the post-FOMC meeting statement in November, the Fed Chairman indicated that the terminal interest rate in this rate-hiking cycle would be higher than 5%. Yet, markets continue to rally on the assumption that the Fed may lower the magnitude of rate hike from the December FOMC meeting.
Momentum Likely to Continue
On Nov 10, the Department of Labor reported that the consumer price index (CPI) and core CPI (excluding volatile food and energy items) of October were lighter than expected both month over month and year over year.
The decline in CPI and core CPI may be marginal but peak inflation seems to be behind us. The CME FedWatch shows that there exists an 80.6% probability, against a 56.8% probability before the November FOMC meeting, that the Fed will raise the benchmark lending rate by 50 basis points in December.
The ICE U.S. Dollar Index (DXY), which measures the greenback’s strength against a basket of six major currencies, fell to 107.85 from 113 on Nov 3. The index soared to its 20-year high of 114.24 on Sep 27.
The yield on the benchmark U.S. Treasury Note at present dropped to 3.899% from 4.325% on Oct 21. The yield on the interest rate-sensitive short-term 2-Year U.S. Treasury Note at present dropped to 4.425% from 4.805% on Nov 4.
Moreover, U.S. GDP grew 2.6% in the third quarter, beating the consensus estimate of 2.2%. Additionally, despite several major headwinds, the overall management guidance in the third-quarter 2022 earnings season was fairly good.
Our Top Picks
Despite year-to-date headwinds, several good stocks are available for investment. We have applied our VGM Style Score to narrow the search. We have narrowed our search to five U.S. corporates that have strong growth potential for the rest of 2022.
These stocks have seen positive earnings estimate revisions in the last 30 days. Finally, each of our picks carries a Zacks Rank #1 (Strong Buy) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past three months.
Image Source: Zacks Investment Research
W. R. Berkley Corp. WRB has been benefiting from its insurance business, performing well on the increase in premiums written over the past many years. W. R. Berkley has been investing in numerous startups since 2006 and has established new units in growing international markets.
W. R. Berkley’s international business is poised for growth supported by emerging markets. WRB’s solid capital position enables capital deployment. Investment in alternative assets should improve investment income going forward.
W. R. Berkley has an expected earnings growth rate of 26.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.1% over the last 30 days. The forward P/E of WRB for the current financial year is 16.3X, lower than the industry average of 18.9X.
Hilton Grand Vacations Inc. HGV is a timeshare company that develops, markets, sells, and manages vacation ownership resorts primarily under the Hilton Grand Vacations brand. HGV also manages and serves club membership programs which include Hilton Grand Vacations Club and The Hilton Club.
Hilton Grand Vacations operates primarily in the United States, Indonesia, Italy, Mexico, New Zealand, Portugal, Scotland and Thailand. HGV has two segments: Real Estate Sales and Financing; and Resort Operations and Club Management
Hilton Grand Vacations has an expected earnings growth rate of 60.9% for next year. The Zacks Consensus Estimate for next-year earnings improved 19.3% over the last seven days. The forward P/E of HGV for the current financial year is 14.2X, lower than the industry average of 23.7X.
Marathon Petroleum Corp. MPC is poised for further price gains based on a slew of positives. MPC’s $21 billion sales of its Speedway retail business provided it with a much-needed cash infusion. The deal also comes with a 15-year fuel supply agreement under which Marathon Petroleum will supply 7.7 billion gallons of gasoline per year to 7-Eleven, thus ensuring a steady revenue stream.
MPC’s exposure to more stable cash flows from the logistics segment diversifies the earnings stream and offers a buffer against the volatile refining business. Consequently, Marathon Petroleum is primed for significant capital appreciation and is viewed as a preferred downstream operator to own now.
Marathon Petroleum has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.9% over the last seven days. The forward P/E of DINO for the current financial year is 5X, lower than the industry average of 5.4X.
Archer-Daniels-Midland Co. ADM has been gaining from solid demand, improved productivity and product innovations. Persistent growth in the Nutrition segment of ADM, aided by significant gains in the Human and Animal Nutrition units, remains the key growth driver.
Archer-Daniels-Midland expects the nutrition segment to record operating profit growth of 20% in 2022. The company has been significantly progressing on its three strategic pillars — optimize, drive and growth.
Archer-Daniels-Midland has an expected earnings growth rate of 42.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7.4% over the last 30 days. The forward P/E of ADM for the current financial year is 12.8X, lower than the industry average of 20X.
HF Sinclair Corp, DINO operates as an independent energy company. DINO produces and markets gasoline, diesel fuel, jet fuel, renewable diesel, specialty lubricant products, specialty chemicals, specialty and modified asphalt, and others.
HF Sinclair also owns and operates refineries in Kansas, Oklahoma, New Mexico, Utah, Washington, and Wyoming. DINO markets its refined products principally in the Southwest United States and the Rocky Mountains, Pacific Northwest, and other neighboring Plains states.
HF Sinclair has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.4% over the last seven days. The forward P/E of DINO for the current financial year is 4.1X, lower than the industry average of 27.5X.
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Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
W.R. Berkley Corporation (WRB) : Free Stock Analysis Report
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
Hilton Grand Vacations Inc. (HGV) : Free Stock Analysis Report
HF Sinclair Corporation (DINO) : Free Stock Analysis Report
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