Six months ago, Maryland Smith’s David Kass updated his semi-annual “stocks to watch” list, expanding the lineup of watch-worthy shares to 21. But now he’s narrowing the list.
The move comes amid rising uncertainties – inflationary pressures, supply chain disruptions and the latest COVID-19 variant to name just a few, says Kass, clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business.
Ten – about half – of his midyear stock picks are back on the list for 2022, along with six new stocks that Kass plans to keep an eye on. Those newcomers are:
CVS Health (CVS): The world’s largest drugstore chain is poised to have a healthy year, Kass says. With a new management team led by CEO Karen Lynch and having merged with Aetna, CVS has expanded its healthcare delivery and has hired more healthcare providers. “It’s playing a key and profitable role in providing COVID-19 and flu vaccinations to customers. It seems there’s a CVS almost in every neighborhood, so I see great growth opportunities and relatively little risk going forward,” says Kass.
Dillard’s Department Stores (DDS): The department store company was one of the surprise stocks of the pandemic era, Kass says. Ted Weschler, one of Warren Buffett’s two portfolio managers, personally purchased roughly 6% of the company’s stock in October 2020 at less than $40 per share. By Thanksgiving 2021 that price climbed to $400. It has since then fallen to roughly $260, but still has potential, says Kass. “With vaccine availability, we saw that the outlook for department stores wasn’t as bleak as anticipated. They’re doing much better than the market expected, and that’s why Dillard’s is making my list for the first time,” he says.
Global Payments (GPN): FinTech payment companies like PayPal and Square saw their stocks decline in 2021, but bounced back a bit in recent weeks, Kass says. That makes a company like Global Payments, which fell 50% this year, attractively priced. “Expect profits and revenues to increase at a reasonable rate going forward the next few years, especially with a large stock buyback and excellent growth opportunities,” says Kass.
Nu Holdings Ltd. (NU): The parent company of the Brazilian online bank is a newcomer to the market in 2021, but it’s had a strong showing so far. Berkshire Hathaway backed the company in its pre-IPO stages with a $500 million investment last June and since then has doubled down purchasing another $260 million in shares now worth $1.2 billion following market gains. The growth potential of the highest-valued Latin American financial institution will be something to keep an eye on in 2022, says Kass.
Nvidia (NVDA): The computer chip maker saw a phenomenal year of growth in 2021, becoming the seventh-largest company by market capitalization, behind others like Google, Microsoft, Facebook and Tesla. “Nvidia dominates the chip market and has a lot of growth ahead of it, despite current microchip availability issues,” says Kass.
Teck Resources (TECK): Shares of the Vancouver-based miner of coal, copper and zinc are reasonably valued and flying a bit under the radar, Kass says. “As the economy shifts from combustion engines to EVs, copper will be the new oil in the years ahead. This won’t happen overnight, but this company is well-positioned for the future,” he says.
They’ll join a list of 10 stocks that are returning to Kass’ lineup. Those are:
Alphabet (GOOGL +71% YTD): Kass remains impressed with the search and ad giant for its growth prospects, and sees room to the upside from its current valuation.
Amazon (AMZN +8% YTD): Amazon had a strong 2020 and a steady 2021 – and Kass is optimistic about its outlook for 2022. “Expanding into new markets is something Amazon has done well at, not just in retail but in its cloud services as well. With an expected expansion of its brick-and-mortar grocery stores, Amazon Fresh, I expect the company to continue growing in new spaces,” says Kass.
Apple (AAPL +39% YTD): The tech giant remains the largest single stock holding of Berkshire Hathaway and Warren Buffett. That may be reason enough for some investors to hold onto their shares, says Kass, who has followed Buffett’s investments for more than 35 years, but Apple itself has more to offer. “I expect Apple to continue to do well with iPhone 13 sales as their primary product. It’s a stock that is still reasonably valued and shows good growth opportunities,” says Kass.
Berkshire Hathaway (BRK.B +26% YTD): “This has been my favorite stock pick for decades,” says Kass. Berkshire Hathaway approximately tracked the S&P 500 this year and is poised for solid returns in the new year with its well-diversified and well-run companies, he says.
Danaher (DHR +28% since midyear): A midyear addition to Kass’ stocks to watch, the Washington D.C.-based science and tech conglomerate had a strong showing in 2021 (rising roughly 42% year to date). “It’s a very well-managed firm with great results and opportunities for the future,” says Kass.
Kroger (KR +17% since midyear): Kroger joins Danaher as another strong midyear addition making a return to the list. “It’s also produced compelling profit reports and has shown more investment in its online capabilities,” says Kass.
Liberty SiriusXM (LSXMK +14% YTD): Liberty Media’s holding of SiriusXM continues to perform well.
Meta Platforms (FB +23% YTD): The Facebook parent company experienced a tumultuous year, but still performed. “Facebook still dominates the social network space with roughly 2.89 billion monthly active users representing a significant participation rate globally. It has this almost insurmountable worldwide market share that I find fascinating,” he says.
Micron Technology (MU +17% YTD): The Idaho-based memory chip maker continues to serve as the No. 1 investment of Li Lu, founder and chairman of Himalaya Capital. Its potential for 2022, however, comes with a caveat. “Micron Technology is dependent on the Chinese economy,” says Kass. It’s a source of growth – and uncertainty, he says.
Microsoft (MSFT +57% YTD): “One advantage Microsoft has over its competitors like Google, Facebook or Amazon is that it isn’t currently under the microscope of regulators,” says Kass. “If you want a high-tech company with rapid growth and less regulatory and political risk, Microsoft is a good bet.”
And that’s 16.
Meanwhile, Kass is dropping 11 companies from his most recent, midyear 2021 list of stocks to watch. Falling from the pack are: RH, Bank of America, Pershing Square Tontine Holdings, AbbVie, Alibaba, Organon, Kansas City Southern, Monster Beverage, the Progressive Corporation, Kraft Heinz, and T-Mobile.
