Top Investment for 2022


10 Investment themes to watch in 2022

My Top 10 Stocks for 2022

Microsoft (NASDAQ:MSFT): As one of only two companies with a higher credit rating than the U.S. government and the only tech giant not facing noteworthy regulatory scrutiny, it's difficult to find flaws with this highly profitable and diversified firm. The Windows operating system, Azure cloud, and cybersecurity offerings will allow Microsoft to remain entrenched as a critical utility in the digital economy for years to come. Analysts project that Azure will carry Microsoft to 15% earnings growth next year, which is quite formidable when combined with Microsoft's generous shareholder returns. The company isn't cheap with a P/E of 37, but I believe this is a case where it's worth paying extra for quality.

Google (NASDAQ:GOOG): Continuing with the cloud computing theme, Google Cloud has become one of the three leading hyperscale cloud providers. Like Microsoft, this is a shareholder friendly company that's still growing quickly, with analysts projecting 17% revenue growth next year. Cyclical advertising still forms the majority of Google's revenue. But with strong economic growth expected in 2022, this may benefit investors next year. Google looks reasonably valued, with a P/E of 28 and a PEG below 1.

Amazon (NASDAQ:AMZN): No portfolio based around cloud and e-commerce would be complete without Amazon, the current leader in both categories. I have some concerns around Amazon's recent leadership change, the lack of buybacks amid slowing growth, and increasing competition across the company's product offerings. But I still think analysts' 29% 2022 earnings growth forecast is a reasonable target considering how quickly the underlying industries are expected to grow. And sustaining that level of growth - as Amazon has done in the past - should continue to lead to strong returns.

Taiwan Semiconductor Manufacturing Co (NYSE:TSM): Although TSMC doesn't fit directly into the portfolio's two major themes, the firm's truly unrivaled semiconductor manufacturing tech gives it a wide moat and puts it at the center of broader digitization trends including cloud computing. TSM's major customers include Apple and data center chip designers Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD). But unlike many of its customers, TSMC looks reasonably valued with a P/E of 30 against 19%projected growth in 2022. Part of that discount relates to regional risk in Taiwan, but I don't expect a material impact from this risk in 2022.

ASML Holding (NASDAQ:ASML): Like TSMC, ASML is an extremely wide moat company whose involvement in semiconductors puts it at the epicenter of digitization. ASML is the only company capable of producing EUV equipment that's critical for advanced semiconductor manufacturing, and that fact won't change in 2022 or for many years to come. Although ASML now looks expensive with a P/E of 53, it's also projected for a respectable 23% earnings growth next year. ASML was one of my biggest winners this year and I'm sticking with it, but more value oriented investors could swap this one out for Lam Research (NASDAQ:LRCX).

Crowdstrike (NASDAQ:CRWD): Moving on to the riskier half of the portfolio takes us to Crowdstrike. Although there are many SaaS companies to choose from, Crowdstrike tops my list because the company is a triple beneficiary of cloud computing. It utilizes hyperscale cloud providers to scale quickly (like most SaaS), it benefits from increased cybersecurity needs as a result of distributed computing, and it is displacing legacy providers that haven't moved to the cloud. It is also a high quality company with a score of 54 on the Rule of 40. I am less confident that Crowdstrike's story will remain the same in 2022 since a single breach can have a huge impact, but with analysts projecting eye-popping 58%earnings growth next year, I believe the reward is likely worth the risk.

Okta (NASDAQ:OKTA): I've tried to pick at least two stocks for each sub-theme, and Okta is the second stock (third if you count Microsoft) focused on the convergence of cloud computing and cybersecurity. The company has most of the same growth drivers as Crowdstrike but hasn't delivered on quite the same level of quality, scoring just 12 on the Rule of 40 despite being forecast for moderately lower 37% revenue growth. Even so, I believe that Okta's focus on identity management - a field with strong network effects and learning curves - gives it more long-term stability than most cybersecurity companies. Investors who want a company that's more profitable right now could swap in Fortinet (NASDAQ:FTNT), which does better on the Rule of 40 and offers buybacks but is projected for slower growth.

Sea Limited (NYSE:SE): Turning now to e-commerce, Sea Limited earns its title as the Amazon of Southeast Asia thanks to its Shopee platform. E-commerce in emerging markets is particularly exciting because it's only at 11% penetration compared to 18.7% in the USA. A further tailwind is Southeast Asia's younger population helping to drive 5.7% GDP growth through 2024, compared to a more typical 2% in developed markets. Finally, the convergence of e-commerce and FinTech is a huge opportunity, with only 18% of people in low income economies even having a debit card. This is just half the story with Sea, since it also has a profitable gaming division that it uses to fund and promote its other arms. This emerging giant is expected to grow revenue at 50% next year.

MercadoLibre (NASDAQ:MELI): All of the previously mentioned companies (except Okta by a hair) had positive returns in 2021. We'll now close out the portfolio with a couple fallen angels, starting with MercadoLibre, i.e. the Amazon of South America. Although the company doesn't have a gaming division, it is otherwise similar to Sea in that it benefits from serving an emerging market with low e-commerce and banking penetration. While MercadoLibre faces competition - including from Sea - it is arguably more dominant in its respective region than Sea. Macro issues have tanked the stock to an all-time low valuation, but I expect a rebound in 2022. Analysts seem to agree, as they project 36% revenue growth and even more rapid earnings growth next year.

Alibaba (NYSE:BABA): It's been a very frustrating year to own Alibaba, as this otherwise fine business has been under constant sabotage from both the CCP and the US government. This has caused multiple earnings misses amid questions about increasing competition and delisting. Despite its all-time low valuation and recent struggles, Alibaba still fits perfectly into the portfolio's themes of e-commerce and cloud computing; it's China's leader in both categories. Cloud computing is at a much earlier stage in China and Alibaba also has a larger opportunity than its developed world counterparts in FinTech, which makes me optimistic about the company's future. Nevertheless, investors who want to avoid the regional risk of Alibaba (or MercadoLibre) could swap in Shopify (NYSE:SHOP), which is taking a unique approach to e-commerce and FinTech in developed markets.

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