The Covid-19 pandemic impacted all of us in many different ways. From work to family to finances, we were forced to adapt to a “new normal” that included staying home, jumping on Zoom calls, doing puzzles, and baking a ton of sourdough bread (or was that just me?).
The coronavirus crisis also likely changed how you invested in the stock market. While 2020 was a wild year, it was also a time filled with opportunity for those willing to take risks.
Like everything else, our short- and long-term investing strategies had to change to fit the unpredictable and volatile market environment.
But change is not always a bad thing.
Hopefully, you’re a wiser, more nuanced investor right now than you were a year ago. You invested and traded your hard-earned cash during a once-in-a-lifetime pandemic, after all.
The same goes for your investment mindset today versus when you just started out. Knowledge is gained through experience, and experience guides how you manage your portfolio. You grow, you learn, you make good trades and bad ones, and then you learn and grow some more.
What should be a part of your investing strategy for 2022?
In order to help you answer that question, let’s go over three popular methodologies: value, growth, and momentum.
Value investing is all about finding good stocks at good prices, and discovering which companies are trading under their true value before the broader market catches on. Value-oriented strategies focus on key ratios like the P/E, Price/Sales, and Price/Cash Flow to pick out the most attractively discounted stocks.
Growth investors, however, are more concerned with a stock’s future prospects, and the overall financial health and strength of a company. Projected and historic earnings, sales, and cash flow are key fundamentals that can help you uncover stocks that boast long-term, sustainable growth.
With momentum investing, you live by the saying “the trend is your friend.” This style is all about taking advantage of upward or downward trends in a stock’s price and earnings outlook; momentum traders often take advantage of simple moving averages—think the 50-day and 200-day—to pinpoint the most favorable times to build, or sell, a position in a stock.
While it’s normal to gravitate to one of these styles, it’s also fairly common to use a combination of all three. This way, you’re finding stocks that are not only attractively valued, but have a strong growth outlook and promising momentum as well.
Utilizing value, growth, and momentum together is also an easy way to diversify your portfolio.
As I always tell Income Investor readers, one of the simplest ways to protect your investments is through diversification, since the more diversified a portfolio is, the less vulnerable it is to broader macroeconomic events.
Including value stocks, growth stocks, and momentum stocks, as well as complementing these investments with bonds, real estate, hard assets, and/or cash, can help your portfolio thrive during all kinds of market scenarios.
Should You Change Your Investing Style in 2022?
This week, and pretty much all of January, has been a wild ride for the markets.
We’ve been entrenched in a rollercoaster trading environment as investors contend with a furious wave of uncertainty; the main source of volatility for the past few days was the Fed’s latest policy update, which reinforced how serious the central bank is about curbing inflation and raising interest rates.
The Fed’s hawkish outlook has also sparked a major tech sell-off, and the Nasdaq is down over 13% so far this year. High-flying growth stocks have seemingly been given the boot in favor of value and cyclical names in industries like banks and energy.
But no matter which kind of stocks are in demand, your investing style will always depend on your savings goals.
If you’re thinking about changing up your portfolio, ask yourself questions like: when do you plan on retiring? Where do you want to retire? Do you have debt you need to pay off? Do you want to buy a home? Do you need to save for your kids’ college education? And so on and so on; there’s a lot you have to think about before switching to or incorporating a different investing strategy.
But no matter what you decide is best this year, always remember that investing is a personal journey. Your life, and where you see yourself in 10, 20, 30 years, should be the driving force behind your investing decisions and strategies.
3 Stocks Worth Your Consideration
Now that I have you thinking about your 2022 investing style, let’s take a look at three stocks with solid value, growth, and momentum combinations.
Bank of America BAC: Bank of America is the second-biggest bank by assets in the U.S., providing a diverse range of banking and other financial services and products. Additionally, BAC outperformed its peers over the past one-year period, gaining over 54% while the Banks-Major industry moved about 30% higher.
BAC reported strong fiscal fourth-quarter results earlier this month, and net interest income, which is the profit banks make on loans and securities after accounting for the cost of funding those assets, grew to $11.5 billion. Wall Street now thinks BAC will generate as much as 12% annual revenue growth in 2022 mainly due to higher interest rates (this generally means larger profit margins and thus, higher net income).
Bank of America, a #2 (Buy) stock, has a forward P/E of 14X, and still trades below the broader Finance sector (15.7X); shares look even cheaper if you factor in BAC’s bullish revenue outlook. Additionally, Bank of America boasts a solid dividend, with an annual yield of 1.85%.
AbbVie ABBV: A biopharmaceutical giant, AbbVie is known for its large drug portfolio of treatments for rheumatoid arthritis, Crohn’s disease, hepatitis C, endometriosis, and cystic fibrosis. Its flagship product, Humira, has been approved for several autoimmune diseases like rheumatoid arthritis and active psoriatic arthritis.
Despite Humira’s pending U.S. patent expiration in 2023, ABBV is still generating solid revenue growth and boosting its pipeline with immunology drugs Skyrizi and Rinvoq. The company also has high expectations for its recent acquisition of Botox-maker Allergan; its bottom line will greatly benefit as the two companies continue to integrate their operations.
AbbVie has a solid, growing dividend yield of 4.2% (which management has been explicit about maintaining and growing), and the stock currently sits at a #3 (Hold) on the Zacks Rank. Shares are cheap as well, and it even looks like a bargain, trading at a 9.8X forward multiple compared to the broader Medical market (19.4X).
Microsoft MSFT: Microsoft is a technological powerhouse. Its Office software is used around the world, and its Azure cloud computing platform is now the go-to choice for many enterprises, especially in the pandemic-related shift to remote work. Add in its Windows operating system, LinkedIn, and its Xbox gaming division, and Microsoft and its investors still have many ways to profit.
Microsoft is also extremely liquid; it generated free cash flow of $8.6 billion last quarter, up 3% year-over-year. The tech giant has a ton of leeway to keep investing in new growth ideas while rewarding its shareholders with a growing dividend—MSFT regularly hikes its payout and shares yield 0.83% on an annual basis—and stock buybacks.
MSFT is a #3 (Hold) on the Zacks Rank, and analysts are forecasting 15% earnings growth for the current fiscal year. Shares currently trade at 30.6X forward earnings, still a premium despite the recent sell-off. But if you’re looking for a company that generates stable sales and profits and rewards investors through dividends and buybacks, MSFT looks to be worth consideration.
Disclaimer: I own MSFT in my personal portfolio and ABBV in the Income Investor portfolio. Follow me there for the latest buy-and-hold strategies.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.