U.S. consumers are starting to feel the sting of rising inflation. The consumer price index (CPI) surged 6.8% in November—the highest jump since 1982. And investors are researching which stocks to buy in the final days of the year.
Analysts debate when the Federal Reserve might start raising interest rates. Prior to the omicron variant, Wall Street was positive that the Fed would start increasing rates sooner than later. However, Chair Jerome Powell is also watching Covid-19 headlines and economic data very closely.
Different segments of the economy are affected by interest rate moves in different ways. According to US Bancorp (NYSE:USB), “Short-term interest rate changes should not affect the long-term outlook for an investor with a long time horizon and an appropriate mix of stocks and bonds (balanced portfolio).”
For instance, the financial sector has always been extremely sensitive to changes in interest rates. In particular, banks expand profit margins as interest rates go up. In addition, financial energy, materials, real estate and consumer names tend to enjoy pricing power during inflationary periods.
With that said, here are seven stocks to buy that could help investors navigate moves by the Fed in 2022:
- Franco-Nevada (NYSE:FNV)
- Freeport-McMoRan (NYSE:FCX)
- Kroger (NYSE:KR)
- Lockheed Martin (NYSE:LMT)
- United Parcel Service (NYSE:UPS)
- Vanguard Financials Index Fund ETF Shares (NYSE:VFH)
- Vulcan Materials (NYSE:VMC)
Stocks to Buy in 2022: Franco-Nevada (FNV)
52-week range: $105.62 – $163.79
Dividend yield: 0.92%
When inflation goes up, seasoned investors look at commodities, especially gold, for a potential hedge. Our first company, Franco-Nevada, comes from Canada.
This royalty and streaming name generates revenue mostly through streaming agreements. In other words, Franco-Nevada purchases the shiny commodity from other miners globally. However, because FNV pays their capital requirements, it can have the upper hand to negotiate the price of gold. Therefore, it is somewhat immune to price declines in gold.
Franco-Nevada released Q3 results in early November. Despite a decline in the average price of gold, the company increased revenue to $316.3 million, up 13% year-over-year (YOY). Adjusted net income came in at $165.6 million, or 87 cents per diluted share, up from $152.3 million, or 80 cents per diluted share, in the prior-year quarter. Cash and equivalents ended the period at $346.7 million.
On the results, CEO Paul Brink said, “Franco-Nevada delivered a strong third quarter, setting the stage for a record year in 2021. Our diversified portfolio continues to serve us well with strong contributions during the quarter from precious metals, energy and iron ore.”
Investors like the fact that FNV has exposure to exploration upside without any real risks related to exploration. The company boasts a diversified portfolio with agreements on 325 mining properties.
FNV stock currently hovers at $133, up 6% year-to-date (YTD). Shares are trading at 36.8 times forward earnings and 19.6 times trailing sales. The 12-month median price target for Franco-Nevada stock is $156.00.
52-week range: $23.77 – $46.10
Dividend yield: 0.78%
From gold, we move on to copper, another commodity that has been on investors’ radar in recent months. The price of copper, which is economically sensitive, currently hovers at $4.30 per pound. In January, it was around $3.50.
Recent metrics highlight, “Global copper reserves are estimated at 870 million tonnes … and annual copper demand is 28 million tonnes. Current copper resources are estimated to exceed 5,000 million tonnes.”
Our next stock is the Phoenix, Arizona-based Freeport-McMoRan, the largest copper producer worldwide. It is well-known for the Indonesian Grasberg mining complex.
Freeport announced Q3 results in late October. Total revenue increased 58% YOY to $6.1 billion. Adjusted net income totaled $1.3 billion, or 89 cents per diluted share, compared to $430 million, or 29 cents per diluted share, in the prior-year quarter. Cash and equivalents ended the period at $7.9 billion.
On the metrics, CEO Richard C. Adkerson said, “We have established a solid foundation for the future as a leading long-term supplier of copper to support a growing global economy and the transition to clean energy.”
Freeport continues to benefit from rising raw material prices. Copper is widely used in electrical infrastructure, construction and manufacturing. The commodity is also a “major component in EVs used in electric motors, batteries, inverters, wiring and in charging stations.”
FCX shares hover around $38 territory, up close to 45% since the start of the year. Shares are trading at 14.6 times forward earnings and 2.7 times trailing sales. The 12-month median price target for FCX stock is $44.00.
Stocks to Buy in 2022: Kroger (KR)
52-week range: $30.35 – $47.99
Dividend yield: 1.88%
Cincinnati, Ohio-based Kroger is a leading American grocer that operates about 2,750 supermarkets. The brands include King Soopers, Smith’s, FredMeyer, Fry’s and City Market, among others.
Kroger issued Q3 results in early December. Revenue went up by 7% YOY to $31.9 billion. Adjusted net income came in at $589 million, or 78 cents per diluted share, compared to net earnings of $557 million, or 71 cents per diluted share, in the prior-year quarter. Cash and equivalents ended the period at $2.29 billion.
After the announcement, CEO Rodney McMullen remarked, “Kroger’s strategy to lead with fresh and accelerate with digital continues to connect with our customers. Our agility … is allowing us to navigate current labor and supply chain conditions and provide the freshest food at affordable prices across our store and digital ecosystem.”
Over the past year, Kroger benefited significantly from the cook-at-home trend due to lockdowns. Although there may not necessarily be any more lockdowns in 2022, rising costs might force more Americans to dine at home.
KR stock has a price tag slightly below $46 per share, and the dividend yield is close to 2%. Shares have soared 44% so far in 2021. Despite the increase in its price, KR shares have a moderate valuation at 13 times forward earnings and 0.25 times trailing sales. The 12-month median price target for KR stock stands at $47.
Lockheed Martin (LMT)
52-week range: $319.81 – $396.99
Dividend yield: 3.25%
Lockheed Martin is one of the most important names in the global aerospace and defense industry. InvestorPlace.com readers will especially be well familiar with its F-35 fighter jets and Sikorsky helicopters. The group generates most of the revenue from long-term government contracts.
Lockheed Martin released Q3 results in late October. Revenue declined 3% YOY to $16 billion. Net earnings came in at $614 million, or $2.21 per diluted share, down from $1.7 billion, or $6.05 per diluted share, a year ago. Cash and equivalents ended the period at $2.73 billion.
On the results, CEO James Taiclet remarked, “we continued to advance the state of the art and innovation across key technologies, including Future Vertical Lift, Integrated Air and Missile Defense, hypersonic weapon systems, next generation satellites, and many others.”
Lockheed is able to generate significant free cash flow due to government contracts. Even during the pandemic last year, investors have witnessed an increase in global defense spending. As Lockheed continues to secure orders outside the U.S. from ally countries, its long-term prospects look bright.
LMT stock currently hovers around $345, down 3% YTD. The current price supports a dividend yield of 3.3%. Shares are trading at 12.5 times forward earnings and 1.45 times trailing sales. The 12-month median price target for LMT stock stands at $378.50.
Stocks to Buy in 2022: United Parcel Service (UPS)
52-week range: $154.76 – $220.24
Dividend yield: 1.95%
Next on our list is the Atlanta, Georgia-based UPS, one of the largest parcel delivery names worldwide. The logistics group has an impressive fleet of over 500 planes, as well as 100,000 vehicles. Hundreds of sorting facilities worldwide help deliver over 22 million packages a day.
UPS announced Q3 results in late October. Revenue came in at $23.2 billion, up 9.2% YOY. Net income was $2.33 billion, or $2.65 per diluted share, up from $1.96 billion in the prior-year period. The company generated free cash flow of $9.27 billion YTD.
After the announcement, CEO Carol Tomé commented, “The actions we are taking under our better not bigger strategic framework to improve revenue quality, enhance productivity and remain disciplined on capital allocation are driving our positive financial performance.”
The pandemic has meant a significant increase in e-commerce, which, in turn, has benefited names like UPS. In addition, the group has grown operations in the healthcare industry. In 2022, Wall Street expects UPS to raise prices by roughly 6% in 2022 to compensate for rising labor costs and inflation levels.
The stock has more than doubled in value from its pandemic lows in early 2020. UPS currently hovers around $210 territory, up 24% since the start of the year. Shares are trading at 17 times forward earnings and 1.9 times trailing sales. The 12-month median price target for UPS stock stands at $238.
Vanguard Financials Index Fund ETF Shares (VFH)
52-Week Range: $69.86 – $101.26
Dividend Yield: 1.75%
Expense Ratio: 0.10% per year
Research suggests “banking stocks are generally negatively (positively) impacted by increases (decreases) in official interest rates.” Put another way, in the case of interest rate increases by the Fed, the financial industry could benefit.
Therefore, our next discussion centers around an exchange-traded fund (ETF), namely the Vanguard Financials Index Fund ETF Shares, which invests in U.S.-based financial names. The fund was first listed in January 2004, and assets under management currently stand at $12.8 billion.
VFH, which has 394 holdings, tracks the returns of the Vanguard US IMI Financials 25/50 Benchmark. Main sub-segments in the fund include: diversified banks (24.10%), regional banks (14.50%), asset management and custody banks (10.30%), investment banking and brokerage (8.90%) and financial exchanges and data (8.90%).
JP Morgan Chase (NYSE:JPM), Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), and BlackRock (NYSE:BLK) constitute the leading names on the roster. Net assets of the ten largest holdings account for 42% of the fund.
The ETF has returned 31% in 2021 and hit an all-time high in early November. Despite the significant rally in the past year, we are bullish on financials in the year ahead.
Stocks to Buy in 2022: Vulcan Materials (VMC)
52-week range: $134.53 – $210.16
Dividend yield: 0.72%
Birmingham, Alabama-based Vulcan Materials is the nation’s largest provider of construction aggregates, such as crushed stone, gravel and sand. Our readers might also know the company as a producer of asphalt and cement.
Vulcan reported Q3 results in early November. Revenue increased to $1.52 billion, up 16% YOY. Net earnings came in at $177 million, or $1.33 per diluted share, down from $200 million, or $1.51 per diluted share, in the previous year. Cash and equivalents ended the period at $136.4 million.
After the announcement, CEO Tom Hill remarked, “We expanded our industry-leading trailing-twelve month unit profitability for the thirteenth consecutive quarter despite a challenging operating environment caused by inflationary pressures and labor constraints.”
Over the past several months, the global economic recovery has provided strong tailwinds for Vulcan’s top-line growth. The group generates revenue from private-sector building construction as well as government projects such as infrastructure projects. Even without President Joe Biden’s recent infrastructure bill, the increase in new home construction levels has been providing tailwinds for the sector.
Therefore, there could still be significant upside potential in VMC stock. It trades around $200 per share, up 37% YTD. Shares are trading at 32 times forward earnings and 5.4 times trailing sales. The 12-month median price target for VMC stock stands at $220.