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Argus Research is an independent Wall Street research firm. By not advising companies, brokering trades are making markets in stocks, the firm’s analysts are free to make their buy and sell recommendations without considering a firm’s underwriting business. Here’s a look at a dozen of their top stocks for 2022 highlighted in MoneyShow’s 2022 Top Picks report.
Based in Pittsburgh, PNC
PNC PR P
Financial Services Group (PNC) provides a range of retail and commercial banking, residential mortgage lending, and asset-management services.
With the Federal Reserve set to raise short-term interest rates in 2022, we believe regional banks will perform well due to widening net interest margins. PNC is well positioned with an asset-sensitive balance sheet that will benefit from higher rates.
PNC also has a catalyst in the mid-2021 acquisition of the U.S. banking subsidiary of Banco Bilbao Vizcaya, which added to the company’s national bank franchise and we expect to result in about $900 million in cost savings.
Following the Federal Reserve’s June 2021 stress test results, PNC announced a 9% increase in the quarterly common dividend, to $1.25 per share (the shares currently yield 2.5%) and plans to repurchase up to $2.9 billion in stock. Our 12-month target price is $220.
Alphabet (GOOG) is one of the big tech companies that continually innovates in mobile, public cloud, and big data analytics, as well as emerging areas such as artificial intelligence, virtual/augmented reality and even quantum computing.
Alphabet’s Google
GOOG
division dominates the digital advertising market, a market that continues to experience strong secular growth.
While Alphabet has often been criticized as a Johnny one note for its dependence on digital advertising, the powerful ramp-up in digital advertising as economies have reopened, combined with Google’s dominant position, has certainly been a financial plus that shows little sign of weakening.
Although autonomous vehicle technology is at too early a stage for mass consumer adoption, Alphabet is further along in the testing phase than any of its competitors.
With success, growth, and size come anti-trust concerns in the U.S. and globally. We think that the current antitrust cases are serious, though it will probably take years for them to play out, and they may be difficult to prove in court.
Alphabet’s recovery from the 2Q20 COVID-19-induced advertising slump has been remarkable. We see continued momentum in the coming quarters as e-commerce and digital advertising have burgeoned with economic recovery. GOOGL shares appear attractively valued given the company’s rapidly expanding businesses. Our 12-month target price is $3,100.
Nucor Corp
NUE
. (NUE) is a manufacturer of steel and steel products and North America’s largest steel recycler. The company’s three main operating units are Steel Mills, Steel Products, and Raw Materials.
This well-managed company has a strong balance sheet and offers a solid dividend yield, and is seeing strong demand in most end markets. Based on management’s guidance, we recently raised our 2022 EPS estimate to $16.35 from $15.10.
The shares rose strongly from their pandemic lows in the $30s in March 2020 to current levels above $110. We believe the shares have potential to reach and exceed our 12-month target price of $140.
S&P Global (SPGI) is putting the finishing touches on a multiyear restructuring with its upcoming acquisition of IHS Markit Inc.
INFO
, and will soon be focused on its faster-growing financial businesses, including the lucrative and not-very-competitive business of rating bonds.
The company has a transparent management team and consistently ‘under-promises and over-delivers’ with financial results. SPGI management consistently receives high ESG scores from our ESG partner JUST Capital Inc.
S&P Global has a history of paying (and growing) dividends. The most-recent dividend payout hike was 15%. The SPGI has risen steadily over the past six years, as have earnings. The shares rose more than 45% in 2021. We see value in the SPGI shares, despite the strong run. Our 12-month target price is $525.
The performance of Williams-Sonoma
WSM
(WSM) during the COVID-19 crisis increases our confidence in management’s ability to drive sales with innovative products, improve operating efficiency, and generate cash.
Williams-Sonoma is a leading specialty retailer of products for the home. The San Francisco-based company operates 614 retail stores under the Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm and Rejuvenation nameplates.
While significant economic uncertainty remains, we believe that the COVID-19 crisis has caused investors to differentiate between companies like WSM, with business models that are well positioned for the future, and those that face significant challenges.
Our five-year earnings growth rate is 9%. There are several reasons that we expect WSM to keep growing. Most notable is that CEO Laura Alber and the company’s designers have shown that they can maintain their rare knack for building brands and product lines from scratch.
The company is selling unique merchandise and has excellent tools for analyzing e-commerce and developing marketing plans. It also has an improving supply chain and delivery network, and a good balance of physical stores and e-commerce.
Over the last five years, WSM has raised the dividend at a compound annual rate of 10.6%. WSM has raised the dividend three times during the pandemic and announced two new share-repurchase plans. The indicated dividend yield is approximately 1.7%. Our 12-month target price is $250.
Over the next 12 months, we expect Moderna (MRNA) to continue to benefit from an increasing number of advance purchase orders for its COVID-19 vaccine, as well as the potential rollout of variant-specific vaccine formulations.
The company is also in advanced stages of clinical development for vaccines for the flu, respiratory syncytial virus (RSV), and Cytomegalovirus (CMV), and has had promising results in its work on a vaccine for HIV.
The stock recently retreated to what we view as an attractive entry-point for investors, forming a floor near its 50-week moving average as people assessed the impact of the Omicron variant, although we note that the company’s vaccine followed by a booster dose remains one of the most-effective measures against getting sick from the virus.
Our five-year earnings growth rate is 16%. We expect the company to continue to benefit from its successful COVID-19 vaccine development, further expansion of its manufacturing capacity, and the launch of additional life-saving products to market.
American Electric Power
AEP
(AEP) ranks among the nation’s largest generators of electricity and is well positioned to drive earnings growth through investments in its regulated businesses and in renewable generation.
AEP recently agreed to sell its Kentucky operations to Liberty Utilities for $2.85 billion. The sale includes both regulated utility and regulated transmission assets. The proceeds will eliminate the need for equity issuance in 2022, which will benefit EPS.
Management has raised its 2021 adjusted EPS guidance to $4.65-$4.75, up at the low end from a prior $4.55-$4.75. The company recently raised its quarterly dividend by 5.4% to $0.78 per share, or $3.12 annually, for a yield of about 3.7%, above the peer average of 3.1%.
Over the past five years, the dividend has grown at a compound annual rate of 5.7%. Our 12-month target price is $102 per share.
Host Hotels & Resorts (HST) is the largest hotel REIT by market cap and revenue. Host owns 80 luxury hotel properties with about 45,400 rooms.
Host recently reported third-quarter results that exceeded Street expectations. The company post- ed 3Q21 adjusted FFO of $143 million or $0.20 per share, compared to an AFFO loss of $80 million or $0.11 per share in 3Q20.
Host has a solid balance sheet, and is the only lodging REIT with an investment-grade rating from Moody’s
MCO
. As such, we view HST as an attractive holding for investors seeking exposure to the lodging industry recovery.
Our 12-month target price of $20 implies a projected 2022 price/AFFO multiple of 13.2 and a price/sales ratio of 2.6, both below the peer average.
Jim Kelleher, CFA
We believe Nvidia
NVDA
(NVDA) is primed for further appreciation based on its positioning in the AI data center, given the central role of graphics processing in cloud data center, machine learning, inference, and applications acceleration.
COVID-19 continues to impact Nvidia’s business in both negative and positive ways. The gaming and data center platforms have benefited as people continue to work, learn, and play from home.
During an extremely busy fiscal 2021, Nvidia launched its RTX series 30 Ampere gaming card family to huge demand in the PC gaming market. A year later, RTX series cards remains sold-out and should experience multiple quarters of exceptional demand ahead.
The planned acquisition of ARM Holdings has hit some roadblocks, but Nvidia is pressing ahead with the planned deal. If closed, the acquisition will extend Nvidia’s reach from cloud data centers into leadership in edge data centers.
We recommend establishing or adding to positions in this preeminent vehicle for participation in the AI economy. We believe that most technology investors should own NVDA in the age of deep learning, AI, and GPU-driven applications acceleration levels. Our 12-month target Price is of $380.
Kristina Ruggeri
Sales and earnings for Ethan Allen
ETD
Interiors (ETD) are benefiting from new product lines targeting younger customers. Management believes that new designer software will allow the company to match or exceed current sales levels with 20%-30% fewer sales associates.
The company is also experiencing gross margin benefits from the recent consolidation of case goods manufacturing. Ethan Allen maintains a healthy balance sheet with no outstanding debt. The company also pays a dividend that yields about 4% and paid two special dividends in 2021. Our 12-month target price is $36.
Hilton Worldwide Holdings (HLT) is a buy with a 12-month target price of $178. We believe that the continued rollout of coronavirus vaccines will lead to increased room demand, along with higher RevPAR and management fees.
We expect the reopening of the remainder of the company’s hotels, and prospects for accelerated growth in management fees to benefit earnings.
We also expect earnings to benefit from the spinoff of the timeshare businesses and the sale of additional company-owned hotels. Our long-term rating on HLT remains “buy” based on the company’s solid development pipeline, new brands, and well-regarded loyalty program.
Bill Selesky
Devon Energy Corp
DVN
. (DVN) operates within a multi-basin portfolio, with the Delaware Basin representing about 70% of total volume. Commodity exposure is well balanced (gas, oil and NGLs) and we believe inventory depth provides sustainable outperformance.
Devon’s business strategy prioritizes free cash flow (FCF) growth over volume growth, which pro- vides for accelerating cash returns to shareholders. The company has 29 consecutive years of dividend payments and the dividend remains a top-funding priority.
Additionally, on February 16, 2021, Devon instituted the Energy industry’s first “variable plus fixed dividend” framework. The “new” dividend program, initiated after Devon’s acquisition of WPX Energy, provides both a sustainable “fixed” dividend plus a variable dividend, when business conditions allow. The company also has an active $1 billion share-repurchase program.
Lastly, breakeven funding levels (including both capital spending plans and fixed dividend pro- grams) currently are forecasted at about $35 per barrel WTI. Our 12-month target price is $53.
Financial Services
