Value stocks

6 valuable stocks for 2022 among the forgotten 40

Do you remember the Forgotten Forty? It’s time to see them again.

The market at the start of 2022 was tough for most investors, regardless of their approach. Most sectors and styles are down year-to-date. But with a Federal Reserve set to begin tightening monetary policy and economic growth set to remain strong, there is a strong case for value leadership and cyclically oriented businesses.

The “everything rally” of the past year and a half appears to be over, so it might be time for title pickers to shine. “Looking at 2022, I think money is going to be made outside of the major indices or in stocks that aren’t well hedged on Wall Street,” says Jon Boyar of Boyar Value Group, which includes investment firm Boyar. Asset Management. and a research division, Boyar’s Intrinsic Value Research.

Boyar and his team have compiled an annual list of 40 stocks that they consider particularly attractive for the coming year. They are not always traditional value stocks with the cheapest valuations in the market; some may be unfairly ignored or overlooked relative to their potential.

Boyar’s Forgotten Forty portfolio has produced an average annual gain of 11.5% over the decade to the end of 2021, compared to around 10%, on average, for the


Russell 1000 Value

index. Full


Russell 1000,

including growth components, has grown about 14% per year over this period.

Boyard spoke to Barrons about half a dozen highlights from his Forgotten Forty 2022 portfolio.

Bank of America (ticker: BAC) is the most interest-rate sensitive of the major U.S. banks, Boyar notes, with less investment banking and international exposure than its peers. “It’s great when rates are going up and the economy is developing the way it is,” Boyar said.

The bread and butter of banks is to borrow short-term to lend long-term, for example by accepting consumer deposits and underwriting mortgages. If long-term rates rise more than short-term rates, it makes lending more profitable.

About a third of


Bank of America

All $1 trillion in deposits are in non-interest bearing accounts, and the overall interest rate it pays on the deposits is just 0.02%. So there is plenty of room for the bank’s net interest income to grow in step with rates: a 1 percentage point rise in rates would add about $7.2 billion in net interest income to the next 12 months, according to management.

Boyar values ​​Bank of America at 2.2 times the estimated tangible book value per share in 2023, compared to 1.9 times the current share. Its target of $61 implies an upside of around 30% from current levels of around $47.

waltz disney (DIS) is a name that comes up in the Forgotten Forty. The investment thesis is similar to what it was a year ago: a boost to reopening in the short term and continued growth in the long term. That call didn’t pan out in 2021 as Disney+ subscriber growth hit a speed bump and Covid-19 continued to weigh on theme park profits. Disney stock fell 14.5% last year as the


S&P500

yielded nearly 29% including dividends.

“I think the streaming strategy remains solid, no one should have expected it to be a straight line,” Boyar says. “They’re still on track to hit all of their subscriber goals and then some as they move into more international markets and spend a lot of money on content.”

He is optimistic about a recovery in 2022 in the parks segment, which was responsible for half of Disney’s annual profits before the pandemic. Pent-up demand and new features like the Genie+ app are expected to help drive spending per guest higher as visitors return.

Boyar also sees Disney possibly bringing back its dividend once the reopening of the parks progresses further in 2022. He values ​​the stock using a sum-of-the-parts approach, with a multiple of 11x estimated 2023 EBITDA – short for the earnings before interest, taxes, depreciation and amortization – for non-streaming businesses and 5.5 times estimated 2022 sales for the company’s streaming segment (


netflix

[NFLX] is trading for 6.1 times this metric after recent declines). This gives a price target of $240 for Disney shares, for an upside potential of around 66%.

Another reopening room for 2022 could be UberTechnologies (UBER). “I think what will surprise people going forward is how profitable the mobility business will be once people start using it again,” Boyar says. “Delivery has increased during the pandemic and is about to break even. And they have valuable stakes in other ride-hailing companies that are probably worth $10 billion.

That compares to a recent enterprise value of around $78 billion. Boyar values ​​Uber at revenue multiples closer to its North American-based rivals


DoorDash

(DASH) and


Lyft

(LYFT) trading. This gives a target of $79, more than double the stock’s recent level around $38.

A potentially overlooked name on the Forgotten Forty 2022 list is Scotts Miracle-Gro (SMG), which generates most of its sales and profits from its lawn and garden brands, including Scotts, Miracle-Gro, Roundup and Ortho. It also has a fast-growing division called Hawthorne, which manufactures and sells equipment and tools for hydroponic growers, a category almost equivalent to cannabis growers.

“At these levels, you’re essentially paying fair value for the traditional lawn business and getting the cannabis business for free, which has grown over 100% in the last two years,” Boyar says. “For me, it’s the best way to play cannabis.”

The pandemic trend of more Americans moving to the suburbs should be a demographic tailwind for the lawn care industry, Boyar says. He sees a potential split in the cannabis business at some point, which should be a positive catalyst for the stock. During this time,


Scotts Miracle-Gro

intends to repurchase $300 million of stock in its current fiscal year, compared to a recent market capitalization of $8.3 billion.

Boyar values ​​the stock at $242 per share, nearly 40% above recent levels.

Another beneficiary of pandemic trends is Callaway Golf (ELY), says Boyar. Golf is on the rise as a popular outdoor activity outside of urban areas. More flexible hours during remote or hybrid work can’t hurt either. Calloway is a leading producer of golf clubs, balls and apparel: its equipment sales were up 39% year-over-year in the first three quarters of 2021.

Boyar also sees a reopening tailwind at Topgolf, which Callaway took over early last year. The subsidiary’s entertainment venues are a mix of a driving range, sports bar and party space. It’s expected to be a billion-dollar business in 2021, with 50% sales growth forecast for 2022 as the pandemic continues to recede.

Boyar values ​​the golf equipment business at 14x estimated adjusted EBITDA for 2022 and 20x for Topgolf, which is growing faster. This gives a value of $38 per share, an increase of 58%.

Hanesbrands (HBI), meanwhile, doesn’t get enough credit for the mostly recurring features of its core apparel products, Boyar says.

“We love the restock nature of their products, you don’t have the fashion risk that most clothing brands have,” Boyar says. “Theoretically, people should replace their undershirts, underwear and socks regularly.”

He also points


Hanesbrands

‘ Champion, which accounted for 29% of sales last year. This has a wind of growth due to the continued popularity of athleisure.

A new management team at Hanesbrands plans to simplify product offerings, boost online sales and improve manufacturing efficiency. Boyar applies a multiple of 11 to estimated 2023 EBITDA, producing a target of $33.40 per share, roughly double recent levels. The current annual dividend yield is 3.8%.

Write to Nicholas Jasinski at [email protected]