These growth and value stocks are good ways to balance a portfolio.
Although growth stocks have dominated much of the past decade, you wouldn’t know it from the early days of 2022. Some of the most highly valued stocks in the market have been the hardest hit by the stock market selloff, and “boring value stocks” like AT&T Inc. (ticker: T), Berkshire Hathaway Inc. (BRK.B, BRK.A) and Coca-Cola Co. (KO) all significantly outperformed the market. That said, many value and growth stocks trade at discounted prices, and investors can choose from big companies in each category – which area you choose to focus on will largely depend on your risk tolerance.
Growth stock: Unity Software Inc. (U)
It’s rare to see the kind of dominance that Unity wields in its industry. Unity makes software that developers use to create all kinds of 3D content, with its most popular use in video game development, where over 70% of mobile games are created with its software. The company continues to grow rapidly, with analysts expecting revenue growth of more than 30% in 2022. The recent shift in focus from tech to the emerging world of the metaverse should also be bullish for U stocks. , especially if the company seizes the opportunity to dominate the fledgling field – something Unity CEO John Riccitiello has explicitly stated as the company’s goal.
Value stock: FedEx Corp. (FDX)
Everyone knows about logistics and shipping giant FedEx, but that doesn’t mean FDX stock is getting the love it deserves. After trading sideways last year, FedEx is now a total value stock, earning just 14.5 times earnings, a discount of almost half to the S&P 500’s price-earnings ratio of 28. ,6. Considering analysts expect earnings growth of almost 18% per year for the next five years, that’s a godsend. There are fairly high barriers to entry in the capital-intensive logistics industry, and even though Amazon.com Inc. (AMZN) continues to grow, there is plenty of business for FedEx, which also pays a dividend of 1.2%.
Growth Stock: Latch Inc. (LTCH)
Latch, an apartment access and security company, has mind-boggling expectations, even by the standards of most growth stocks. An extremely young company – Latch had no revenue in 2020 – the key metric for Latch, which has to wait for apartments to be built before it can really sell its hardware and software systems, is total reservations, a proxy for future revenue . The company forecasts bookings of $365 million in 2021, up 121% from the prior year. Meanwhile, revenue is expected to grow from $40.2 million in 2021 to $148.5 million in 2022, an increase of 269%. LTCH is trading at a high of 31x revenue, but if these 2022 revenue figures materialize, the stock is trading at less than 6x forward revenue.
Value Stock: Wells Fargo & Co. (WFC)
Value stocks don’t always have to be beleaguered, downed names utterly ignored by the market. Wells Fargo is a prime example of a stock that goes against the typical way investors view value stocks: The stock is actually on an impressive streak, up 66% in the past year. Yet the shares are trading for just 11 times earnings. It also pays a 1.5% dividend and, like the broader financial sector, WFC stands to benefit from rising interest rates in 2022. On top of that, the company is making progress towards lifting of the asset cap that the Federal Reserve placed on Wells Fargo in early 2018 following its fake accounts scandal. While WFC has made concrete progress in improving its regulatory framework, it is unclear whether the cap will be lifted in 2022. Regardless, each passing day is a day closer to a Wells Fargo hassle-free.
Growth Stock: Meta Platforms Inc. (FB)
Facebook’s decision to change its name to Meta Platforms in late October sparked some cynicism from investors and onlookers. The company was also looking to clean up its public image after a whistleblower made negative headlines and even testified before Congress. But FB’s devotion to the metaverse, a virtual world where people will live, work, play and shop, doesn’t look so wild after Microsoft Corp’s proposed deal. (MSFT) to buy Activision Blizzard Inc. (ATVI) for around $69 billion, seen in part as Microsoft’s massive bet on the metaverse. This movement is underway and Meta Platforms, with its more than 3 billion monthly active users and its Oculus virtual reality segment, is at the forefront of potentially revolutionary technology. Meanwhile, Meta and Alphabet Inc. (GOOG, GOOGL) Google dominate the online advertising market, and the company trades for a reasonable 22 times its earnings. Analysts expect earnings growth of 21% over the next five years.
Value Stock: AutoZone Inc. (AZO)
Don’t be scared off by this international auto parts retailer’s nearly $2,000 a share price — at less than 19 times earnings, that’s actually a pretty low price for a stable, high-quality business that’s holding up to economic downturns. Last quarter, the company reported revenue growth of 16.3% as national same-store sales, a key metric for retailers across all industries, jumped 13.6%. Company management appears to be confident in AutoZone’s continued success, approving an additional $1.5 billion share buyback program, on top of the roughly $1 billion that remained in its existing program. At current levels, this means that AZO has authorized the repurchase of more than 6% of all outstanding shares. With the average age of a car on the road in the United States now over 12 years old – a record high – AutoZone also has broader societal trends.
Growth Stock: SoFi Technologies Inc. (SOFI)
Rounding out the last of the growth stocks on this list is San Francisco-based fintech SoFi Technologies. With a valuation of $11 billion, this competitor to Robinhood Markets Inc. (HOOD) has just received big news, as it has been conditionally approved by regulators to become a full-fledged bank. Whereas previously SoFi was forced to use officially chartered banks to hold customer deposits on its behalf, once the February acquisition of Golden Pacific Bancorp is complete, the company will be able to significantly reduce its charges. interest by placing customer deposits directly in its own account. balance sheets. Although SoFi is currently not profitable, this bank charter approval – not something easy to receive – gives SoFi a new avenue for growth that few fintechs enjoy.
Value Stock: Steel Dynamics Inc. (STLD)
Value stocks aren’t always the most timely opportunities, and Steel Dynamics, which lost more than 15% to start 2022, certainly fits that bill. But this US steelmaker, which uses scrap metal in its more environmentally friendly and cheap production process, is trading at a valuation that is hard for long-term investors bullish on the industry to pass up. Trading at less than 5x earnings, STLD pays a solid 2% dividend and also has plenty of room to increase it, as it only uses 9% of earnings to fund that payout. Although analysts are starting to tame their expectations for the industry in part due to lower steel prices and demand concerns related to the slowing Chinese economy, STLD should remain comfortably profitable for the foreseeable future. .
4 best growth stocks, 4 best value stocks to buy:
- Growth action: Unity Software Inc. (U)
- Stock of value: FedEx Corp. (FDX)
- Growth action: Lock Inc. (FSLD)
- Stock of value: Wells Fargo & Co. (WFC)
- Growth action: Meta Platforms Inc. (FB)
- Stock of value: AutoZone Inc. (AZO)
- Growth action: SoFi Technologies Inc. (SOFI)
- Stock of value: Steel Dynamics Inc. (STLD)
Update to January 24, 2022: This story was published at an earlier date and has been updated with new information.