The best stocks to buy for 2022 with double-digit upside potential!
We do a lot of analysis here on the blog, looking for stocks to buy, but the seven stocks I’m going to reveal today are my highest conviction investments…in fact, I feel so strongly about these seven stocks that I’ve invested over $250,000 in my own portfolio!
These are all deep discount stocks with potential returns that double your money or more. I’ll show you why I like each, a price forecast and how much I’ve invested as well as a warning you need to hear!
Watch the video for my seven best stocks to buy for 2022 or scroll down and read the transcript.
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My Favorite FinTech Stock to Buy 2022
Let’s get into that list of stocks to buy though and later I’ll show you how to invest in a stock that’s falling without losing all your money and a warning every investor needs to hear right now!
First on our list, one of my favorite growth stocks SoFi Technologies, ticker SOFI, and this was one of the few growth stocks to move higher on its recent earnings report but of course hasn’t been able to kick that overall pull of a lower market and has dropped since.
I think that’s important though because besides what I’ll show you about the stock, the fact it was able to move higher on earnings, especially when so many other growth stocks have tumbled twenty- or thirty-percent on those quarterly reports, it says investors still like what they’re hearing from the company and are still positive on the shares.
SoFi started as an online student loan refinance platform but has evolved into a full service, fintech wallet and I believe is one of the best positioned for the future of digital banking. Where other fintech platforms like PayPal and Upstart are still trying to bring on products and services, SoFi already has a lead in everything finance from insurance to credit, investing and banking.
A big part of this was the company’s approval for a banking charter through its acquisition of Golden Pacific Bancorp that closed earlier this year. Because most other fintech companies don’t have a bank charter, they can’t offer services like checking or savings and don’t have access to low rates like a traditional bank. This really does put SoFi way ahead of the competition and until the machines take over , the company is going to be leveraging that for growth!
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The company reported 87% growth in new members last quarter to almost 3.5 million and while the percentage increase is slowing, that is amazing growth at that scale. To put that into perspective, the company’s closest competitor Ally Financial grew its customer base by just 11.7% last year.
SoFi grew revenue by 63% last year to over a billion-dollars and more importantly, became earnings positive on an EBITDA basis with $30 million in earnings before interest, taxes and depreciation.
And this is what really separates it among growth stocks. You’re seeing the biggest selloffs in those growth stocks that, while they’re producing strong revenue growth, are still losing money…they’re still posting negative earnings. In comparison, the best growth stocks are ones like SoFi that are becoming profitable, where the stock price isn’t still based on a hope of someday posting positive earnings.
Management has guided to 55% growth in revenue this year to nearly $1.6 billion and a six-fold increase in adjusted earnings but what is really powerful here is take a look at that change in the EBITDA margin from 3% in 2021 to a projected 11% this year. That margin is the profitability, the amount of earnings as a percentage of sales so how efficient is management at converting those sales into profits. Nation, this is one of the biggest things to watch for in growth stocks, those that can continue to grow sales by thirty- or forty-percent and more while at the same time becoming MORE profitable! That’s a powerful trend!
At one point, this stock traded for $25 a share and over 25-times on a price to sales basis. Now it’s down to under $10 a share and trading for a price of just 7.2-times sales. If you do just some simple back of the envelope math, analysts expect sales to continue at a 30% pace to $3.6 billion through 2024. Even if the price multiple comes down to five-times sales, which would be extremely low for a company still growing sales by 30% a year, but even at that…this would be an $18 billion company or a share price of $22.50 each.
And like a lot of these growth stocks, I think it goes well beyond that over the next decade. As more of our financial lives goes online, SoFi will be there and could grow into a megabank.
I started buying the shares this year, once in January and again in February, for a cost basis of $10.74 and just under $27,000 invested in the stock.
How to Buy Stocks 2022 without Losing Money
You’re going to notice that I’ve bought most of these in multiple blocks but I’m not just buying more every time the price falls so I wanted to outline a strategy for when to add to a stock without catching that falling knife all the way lower.
If I’m buying a stock and it’s around some expected event like an earnings release or major news, a lot of times I’ll use half the money I was going to invest. That still puts me in a position to benefit if the stock jumps but also sets aside some money to get it at a lower price if the shares fall.
If unexpected news hits and the shares fall, I always do a completely new analysis before investing more money and only if I still come out with a strong upside opinion of the stock.
Nation, it is so important here to honestly listen to the other side of the story, the bear-side case for why the stock is falling. Too many investors get cemented in their analysis and even when new information comes out, they’ll only read articles that put a positive spin on the stock or they’ll write-off negative analysts as not knowing the true value. It’s a well-known behavioral problem called Confirmation Bias and has lost investors billions.
There are other stocks, not on this list of stocks I’m buying, that I was wrong about and sold even at a loss because I took the time to look at the bear case and new information. It is perfectly fine to take a loss on a stock if it means you avoid a bigger loss or just sitting on dead money because you got emotional about and investment and couldn’t hear the other side of the story!
I want to get back to our list of stocks to buy though but stick around because next I’ll also reveal the one thing that can destroy your portfolio investing in stocks.
My Favorite Pharma Stocks to Buy 2022
Teva Pharmaceuticals, ticker TEVA, is one I’ve owned for more than a year now and a strong value stock candidate . Not only is the company the world’s largest maker of generic drugs but it also has a strong pipeline of branded medications along with blockbusters like Ajovy and Austedo contributing to $16 billion in annual sales.
Shares initially plunged in 2019 on the company’s aggressive acquisition strategy, borrowing tens of billions to buy other drugmakers. Those acquisitions failed to produce the sales expected and the company was stuck with as much as $34 billion in debt. It’s since paid that down to $21 billion, which is still high but manageable.
Watching for that acquisition strategy is something we’ve talked about on the channel before and it’s destroyed a lot of great companies like Teva and AT&T. I saw the turnaround from the strategy after the share price crash in 2019 and started building a position and what a ride it’s been! The stock has rebounded back over $12 each multiple times only to fall back below $8 a share.
The other factor in the stock’s weakness is the six-year litigation over opioid sales in the U.S. with thousands of state’s attorney generals and local governments filing lawsuits against pharmaceutical companies. The majority of these lawsuits have now been settled and Teva’s CEO commented in the most recent earnings release that the company’s remaining lawsuits could reach closure this year. Teva has $2 billion in balance sheet cash and plenty of cash flow to pay a settlement without any fear of bankruptcy.
So my perspective here is of a deep value stock with significant catalysts to the upside. Shares trade for a price-to-sales ratio of just 0.52 times versus a 3.3-times multiple on shares of Gilead Sciences, ticker GILD, and 3.6-times sales for Bristol-Myers Squibb, ticker BMY . Now for companies with so much debt, you really need to use the enterprise value to sales ratio which takes into account balance sheet cash and debt but here we see that Teva stock is trading for an enterprise value of just 1.88-times its annual sales versus 3.4-times for Gilead and 3.85-times for Bristol-Myers.
The average multiples for competitors there would be 3-times sales or an enterprise value of 3.6-times sales which would mean a share price between $33 to $44 each for Teva . I think even after a opioid settlement, there’s still going to be some overhang and it doesn’t get that high but this stock should easily trade for one-times sales or 2.5-times on an EV-to-sales basis which would mean a stock price between $15 to $17.50 each.
I originally bought in after the 2019 collapse but because the shares have been so volatile, I’ve been selling call options each year when the stock gets up around $12 each, something called the covered call strategy. You can see here, I’ve not got 6,000 shares at an average cost of $7.88 each for just over $47,000 invested. I sold 20 call option contracts last year, covering 2,000 shares, when the stock reached back up to $10 each and collected $1,800 to take some cash risk out of the position. I did the same last year and collected nearly $10,000 on those call options, so maintaining the upside return to $12 or $15 per share and creating a cash flow from a volatile stock.
My Favorite Growth Stocks to Buy 2022
Teledoc Health, ticker TDOC, is one of my three favorite growth stocks and probably the one I think could surprise the most over the next decade.
Teladoc is the global leader in virtual healthcare with a provider network that covers 76 million U.S. patients and a billion member data points from traditional telehealth to remote monitoring and next generation primary care.
Obviously the last two years were huge here, like five years of growth, but the company was already growing at a solid rate. Membership growth has grown 33% annually since 2018 and the company booked nearly 15 million patient visits last year.
Revenue doubled last year and 80% of that is from recurring services so I like it for the stability even if growth for telehealth slows from last year’s faster pace. Longer-term, telehealth and virtual care is the future but I think the data is really the undiscovered value here, processing all that patient data for analysis and research.
And where just last year shares of Teledoc were the posterchild for those expensive growth stocks, the selloff has taken this one into really attractive territory. Through increased monetization and modest member growth each year, management has a three-year target for 25- to 30% annual revenue growth. That takes it to just over $4 billion in revenue by 2024 on estimates for $2.6 billion this year.
Shares of Teledoc are now trading for just 4.2-times on a price-to-sales basis. This is a stock that at one point traded for 17-times its sales and for well over $300 a share, now under $70 each and still growing by 30% a year. Even on a very conservative price multiple of five-times its 2024 sales target of $4 billion, that’s a $20 billion company for a 112% return to $146 per share.
I hated the valuation last January but still really liked the company. I broke my own rule of never investing in a stock valued at more than 10-times on a price-to-sales basis…even a growth stock like this. But I compromised by selling a put option for 100 shares at a $200 strike and collected $42.50 per share. What that means is I collected $42.50 in cash from another investor and committed to buying the shares for $200 each by January 2023, that’s the expiration date on the put options. Shares were trading for $264 each at the time so there were two scenarios here. If the stock stayed above $200 by 2023 then I kept the $42.50 collected and didn’t buy the shares. If however the stock fell below that $200 strike, I would buy the 100 shares for that much and keep the $42.50 each which means my actual cost for the stock would be $160 each. It was a 40% discount to the price at the time so I felt like, even if the stock came down from those ridiculously high valuations, I could feel comfortable buying it for $140 on my long-term analysis.
Shares have crashed even further and I picked up another 200 shares at an average cost of $70 each in January and February of this year. All told, my average cost for all 300 shares will be $98 each for a total investment of $29,400 that I think could easily be worth almost $44,000 over the next few years.
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Best Short-Term Stock to Buy 2022
This next stock is by far my largest position at over $75,000 and a lot of you are going to groan when you see it but hear me out because this is the single biggest mispriced stock in the market right now!
Groupon, ticker GRPN, emerged quickly as the first mover in the daily deals market for local businesses and used to be the hottest thing a decade ago.
But the company has struggled with acquisitions and just the trend to ecommerce versus the traditional, local retailers it works with.
Sales were already falling and then got crushed during the pandemic, falling to just over a billion in the last twelve months. The company makes between thirty to 35% on the deals it sells which is a strong take rate but you can’t make anything if people can’t get out for the deals.
What I like here though is you see that in 2018 through 2020, even on revenue as high as $2.6 billion the company wasn’t able to turn a profit. Net income slid to negative but on a massive restructuring, lowering costs across the board, Groupon has been able to produce positive earnings on just $1.1 billion in sales over the last year.
Groupon discontinued some of its non-performing segments last year including its physical good store so it’s going back to that core advantage in advertising.
And there are so many catalysts for this stock to jump higher, from a valuation standpoint even to a potential acquisition.
First, look at the balance sheet, and bear with me because just a little bit of math is going to show you why I say this is the single biggest mispriced stock in the market. Groupon has $499 million in cash sitting on its balance sheet and only owes $223 million in long-term debt. That’s a net cash position of $276 million and remember, we’re talking about a company with total shares priced for only $559 million in the market so 50% of the stock market valuation of this company is backed by cash!
This is where it gets really crazy though. Groupon recently revealed it has a 2.4% investment in UK-fintech payments company SumUp. It’s a private company but just closed a funding round that values it just over $20 billion.
Now investments in private companies are nothing new. Google and Amazon have billions in investments in startups, hoping to one day buyout the rest of the company if it grows or just cash out on that investment. The problem is, until a cash-out opportunity like the company going public or being acquired, it’s hard to really know how much the investment is worth.
But let’s just say conservatively, Groupon’s 2.4% investment in SumUp is worth $420 million. That’s 2.4% times a valuation of $17.5 billion for SumUp which is below the current valuation but I want to use conservative numbers here to show you a worst-case scenario for Groupon.
We already saw how Groupon has net cash of $276 million just sitting there on the balance sheet. If we add the $420 million SumUp investment, that would mean Groupon would have cash of $696 million…folks, the total value of the shares right now is only $559 million. Just on Groupon’s cash and this investment alone, the shares would be worth $23.34 each and that doesn’t include the value of the actual business churning out a billion dollars in sales each year.
Besides that base valuation upside, there are several business catalysts for the stock that I think can take it even higher. The first catalyst could be a new deal with Google announced last year. Starting this month, Google Pay users will be able to access Groupon deals , helping to connect small-businesses with customers and streamline how users pay for deals. Shares of Groupon spiked almost 10% on the news but I think the market is still underestimating the boost to sales.
Another catalyst and this one might take a while but potential acquisition interest from a company like Amazon or Google is also a possibility. Groupon has a great competitive advantage in the local retail market, something that would complement a digital advertiser like Amazon or Google. We already know Amazon is trying to work its way into physical retail stores, this would seal the deal and make it the king of retail.
Groupon’s new CEO took over last month after heading up Zappos, an online retailer acquired by Amazon in 2009 , so he not only knows how ecommerce works but what Amazon looks for in a company.
But it’s not just Amazon or Google that might want Groupon. After a year of being locked-down, people want to get out and spend. That’s going to drive traditional retail sales and prove that the brick-and-mortar stores aren’t dead. So Groupon’s position for advertising in this part of the market can still be a great addition to an ecommerce advertising strategy and shares are trading at a deep discount.
It makes a ton of sense that an Amazon or Google would want to buy Groupon. Part of Groupon’s problem is it hasn’t been able to build up its distribution to reach enough consumers or businesses but fold it into the billions of people visiting Amazon each month and you’d see sales skyrocket.
Even without an acquisition offer, these shares should be worth $30 each. That’s less than $200 million for the entire business, creating a billion in annual sales, plus the cash and SumUp investment. It’s a 60% return from here and realistically, the stock could go even higher to $40 or $50 a share.
I started buying in March of 2020, just as the pandemic crash was destroying the shares and have added to the position since with most of it, about 2,500 of the 4,000 shares this year. My cost basis here is $23.31 per share for $75,000 invested and you see here, I’m using the same covered call strategy I used with Teva. When the shares pop higher like they did in January, jumping 38% in two days to $30 each, I sold these call options and collected almost $13,000 in cash and still have that upside return to $30 a share in 1000 shares and to $40 in another 1000 shares.
If shares of Groupon go to just $30 each, something I think will happen when they monetize that SumUp investment, I’ll make almost $50,000 on this one stock alone.
How to Invest in 2022
We’ll get back to our list of stocks to buy but I need to make a VERY IMPORTANT point here. Even at that $75,000 investment, Groupon isn’t breaking my five- to seven-percent rule here. In fact, it’s closer to about 2% of my total portfolio.
All you out there in the Bow Tie Nation have heard me talk about this but let me explain because it is SO important when we’re talking about chasing these deep value stocks.
These seven stocks I’m buying all seem like great investments but there is a good chance that at least one won’t meet my expectations and may fall even more. And Nation, I’ve just seen too many times, investors get emotional about a stock and keep buying all the way down.
They buy at $100 a share, then at $80 a share and just keep buying until that one stock is like thirty- or forty-percent of their portfolio…or even more! I’ve seen investors chase a stock and eventually have all their money in it.
And folks, I know it’s easy to get emotional about a stock…to have invested so much of not just your money in it but your time analyzing it, that you practically feel it in your bones that it’s going to rebound…but if it never does, and you’ve got everything riding on it…it’s the kind of think that destroys portfolios and utterly devastates investors.
It’s why I always say, even if you’re adding more into a stock, buying more shares to dollar cost average, never have more than five- to seven-percent of your total net wealth in any single stock. That way, if the stock does jump back higher then you can still make a great return but if it sits there dead money or worse if it never recovers, then you’re not going to wreck your entire financial hopes.
Best Value Stocks to Buy 2022
This next stock I’m buying, WW International, ticker WW, is another shorter-term value play on a steep discount in the shares.
Over the last year, I’ve been looking for stocks that sold off on the pandemic but are still good businesses and should rebound once we get back to normal. Stocks like Groupon and Weight Watchers.
For its part, Weight Watchers is transitioning to a more full-service health company adding functionalities like sleep tracking, meditation, social media and fitness to its mobile app. It’s also in the middle of a turnaround, closing half its U.S. studio locations and shifting to a digital-first model to cut expenses.
But if people aren’t going outside, they don’t care how big their asses get so sales and earnings have been hit over the past couple of years. Sales of $1.2 billion over the last year were down 14% from $1.4 billion in 2019 and both sales and earnings are expected flat for 2022.
But for a stock down 75% from last year’s high of $41 a share, there is still a lot to like about the company. The fourth quarter was likely a low point for subscribers and is cyclically the worst quarter for the company. I think the first and second quarter this year get a boost from people emerging from their pandemic caves and getting back in shape.
It’s still a strong cash flow business, generating $157 million in operational cash last year and $120 million in free cash flow. The company has over $150 million in balance sheet cash, so plenty of funding to see it through the transition, and earnings are expected up 20% over the next couple of years as it trims expenses.
But it’s really on the valuation side that I’m investing. The shares trade for just 0.57-times sales right now but were as high as 2.4-times sales in 2017. The five-year average price multiple of 1.8-times sales would be a 215% increase in the stock price and any improvement in outlook gets the stock up to $20 a share quickly.
I’ve been buying since after the big drop in September of last year and have added another 1,500 shares this year on an average cost of $16 per share and almost $31,000 invested. Like Teva and Groupon here, this isn’t necessarily a long-term hold like the growth stocks in the list but a valuation play on a stock that is just too cheap to stay at this price.
Best Tech Stocks to Buy 2022
Another growth stock I really like, one positioned to be the future of banking, PayPal Holdings, ticker PYPL.
I recently did a complete analysis video on PayPal and think it could go to $500 a share for a 377% return from here.
PayPal is quickly becoming everything you need in digital finance. It enables retailer payments through the BrainTree acquisition, allows you to send money internationally with Xoom, helps people with saving and couponing with its Honey app, offers bill pay and direct deposit as well as a high-yield savings account through a partnership with Synchrony. Bring this all together with the Venmo digital wallet and you could conceivable handle every financial transaction through the PayPal ecosystem.
And that’s a bigger opportunity than the market realizes just yet. Use of digital wallets passed cash last year in offline sales and have been the dominant payment form in ecommerce since 2017. You see the rise of digital wallets in the purple line in the two charts here, ecommerce on the left and offline Point-of-Sales volume on the right. Digital wallets are now used in 45% of all ecommerce purchases and nearly one-in-three offline purchases.
That trend to digital banking and handling your money in zeroes and ones instead of dollar bills is only picking up momentum and undeniable leader in the space. A survey last year found that 60% of Americans now use some time of digital wallet, and it’s interesting that in this table you see both PayPal and Venmo…so since PayPal owns Venmo…really it’s 32% using PayPal, well above usage of competing wallets from Google or Apple.
That potential for a 30% annualized return to $245 a share doesn’t even include the big upside on the rise of digital wallets that I outlined in our recent analysis so make sure you check out that video.
Even on the near-term $245 price target, I’ve been buying shares since January of this year for a total of 400 shares at an average cost of $140 each or just under $45,000 invested in the stock.
Best Way to Invest in Crypto 2022
This next one is more of a strategy than a stock but could mean a 53% return in less than a year with covered calls on the ProShares Bitcoin Strategy ETF, ticker BITO.
Now I know a lot of you aren’t yet bitcoin believers but hear me out on this because it’s a great way to use the volatility in crypto to your advantage for some great cash flow. This is one of my other accounts and you see, I’ve got over $30,000 invested in 1200 shares of the BITO fund.
I bought the shares for $25.19 each and immediately sold the call options to another investor to collect $5.56 for each share, collecting a total of $6,675 from those call options.
Now there’s two ways to look at this investment, either way is going to blow your mind on the return. One way is as a discount to those shares. Because I collected $5.56 a share on the call options, that lowered my cost of the fund to $19.62 each. That means, I got the fund at a 22% discount to the price it was trading for on that day! If the fund goes to $30 each by expiration of those call options, so January 2023, then I sell them for $30 and will have made 53% on my money in less than a year. If the shares stay below $30 each, the calls expire worthless…I keep the money collected and the shares and can turnaround and sell more call options against them for more cash flow!
The other way you can look at this is as an instant cash return, basically making the BITO fund an amazingly high dividend stock. I paid $25.19 for each share and immediately collected a cash return of $5.56 each for a 22% dividend yield. Same scenarios apply here. If the shares move to $30 or more, I sell for that amount and make the difference between $30 and the $25 I paid or about 19% on top of that dividend yield. If the shares close below $30 by January, I can sell another call for another dividend!
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