Wall Street Stories of 2021 to Drive Markets in 2022: 5 Picks

U.S. stocks have been booming this year with the major bourses skyrocketing to new peaks. Solid corporate earnings and an improving economy have driven the markets higher though inflation fear, the resurgence in COVID-19 cases and Fed’s taper concerns have weighed on investors’ sentiment.

We discuss some of the hot events of 2021 that should influence markets in a big way in the New Year. Also, we highlight some stocks such as Affiliated Managers Group AMG, Advanced Micro Devices AMD, CF Industries CF, J.Jill JILL and PDC Energy PDCE that could be compelling picks to tap the trend.

With just a couple of sessions left to end 2021, the S&P 500 is up 27.6% and is approaching the new milestone of 4,800. The Dow Jones and the Nasdaq have gained 19.2% and 22.3%, respectively.

Fed Taper

In the latest FOMC meeting, the Federal Reserve signaled a more aggressive unwinding of its pandemic-era monthly bond-buying, setting the stage for three interest rates hikes in 2022 to fight inflation. The central bank plans to buy $60 billion per month of bonds in combined Treasuries and agency mortgage-backed securities starting in January, down from $90 billion in December and $120 billion from the start of the pandemic through November. The speedy tapering comes amid the highest inflation in nearly four decades, solid job gains in recent months, and a declining unemployment rate.

The financial sector seems to be the biggest beneficiary of the Fed’s move. This is because the steepening yield curve would bolster profits for banks, insurance companies and discount brokerage firms. Affiliated Managers is a global asset manager with equity investments in a large group of investment management firms or affiliates. The stock has surged about 63% this year and is expected to maintain its bullish trend heading into 2022.

Affiliated Managers has an impressive estimated earnings growth of 15.1% for the next year. AFL has a Zacks Rank #2 (Buy) and VGM Score of B.

Upbeat Earnings

Earnings this year so far have shown solid growth. Q4 earnings for the S&P 500 are expected to be up 19.3% on 11.4% revenue growth. This would follow the 41.5% rise in earnings on 17.3% higher revenues in Q3. Earnings were up 95% in Q2 and 50.1% in Q1. Overall, 2021 earnings are expected to increase 45.4% in contrast to the 13% year-over-year decline reported last year.

Advanced Micro Devices from the S&P 500 Index appears a lucrative choice to bet on the solid earnings trend. The stock has a Zacks Rank #2 and Earnings ESP of +3.77%. Advanced Micro Devices’ earning are expected to grow 105.4% this year and 24.4% next year.

Advanced Micro Devices has surged about 67% this year and delivered an earnings surprise of 14.03%, on average, over the past four quarters.

High Inflation

Prices of almost everything, from raw materials to food prices to shipping costs, have surged at the fastest pace in nearly four decades. The consumer price index (“CPI”) jumped 6.8% year over year in November, the highest level since June 1982 when inflation hit 7.1%. The pandemic-related supply shortages and continued strength in consumer demand continued to push prices higher.

The so-called core inflation, which strips out volatile components such as food and energy prices, rose 4.9% year over year in November — the steepest increase since 1991. Investors could make some profits by investing in stocks benefiting from rising inflation. While there are many options, CF Industries could be an exciting bet. With a market cap of $15.9 billion, CF Industries is one of the largest manufacturers and distributors of nitrogenous fertilizer and other nitrogen products globally.

The stock has soared 92% this year. CF Industries has an estimated earnings growth rate of 245.6% for the next. It carries a Zacks Rank #2 and a VGM Score of B.

Holiday Sales Boom

The 2021 holiday shopping season has been astounding for retailers as consumers have stocked their carts with gifts and gadgets. This is especially true as retail sales surged the most in nearly two decades powered by soaring ecommerce sales as well as a rush to stores amid supply chain concerns, rising inflation and the raging new COVID-19 variant. Per a report from Mastercard, U.S. retail sales jumped 8.5% (for the period Nov 1-Dec 24) from last year, the highest in 17 years, and are up 10.7% from the pre-pandemic 2019 holiday period. U.S. e-commerce sales jumped 11% while in-store sales rose 8.1% year over year.

The strong trend is likely to continue in the next year too. J.Jill operates as a specialty retailer of women’s apparel. The company offers sweaters, tops, pants, dresses, shorts, skirts, sleepwear and accessories. J.Jill markets through retail stores, website and catalog. It’s earnings are expected to grow 123.3% for the fiscal year (ending Jan 2022) and 5.6% for the fiscal year (ending January 2023).

J.Jill has skyrocketed about 400% this year and has a Zacks Rank #1 (Strong Buy). It sports a top VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Energy Sector: A Winner

The energy sector has been the outperformer this year on surging oil prices. Tightening supply and improving demand fundamentals have been driving prices higher. Overall demand for fuel has rebounded to the pre-pandemic levels. PDC Energy has more than doubled this year with a potential to move higher further in 2022. PDC is an independent upstream operator engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids.

PDC Energy has an estimated earnings growth rate of 29.1% for next year and sports a top Zacks Rank #1. The stock has a VGM Score of B.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report
CF Industries Holdings, Inc. (CF) : Free Stock Analysis Report
Affiliated Managers Group, Inc. (AMG) : Free Stock Analysis Report
PDC Energy, Inc. (PDCE) : Free Stock Analysis Report
J.Jill, Inc. (JILL) : Free Stock Analysis Report
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