Wall Street has had an impressive run this year with all major market indexes racking up healthy returns year to date. Barring the stock market turbulence in September, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite performed remarkably well before the brutal Black Friday selloff as investors braced for the Omicron variant of coronavirus triggering a fresh round of travel restrictions and lockdowns. Worries over Omicron sent ripples through the stock indexes. Notably, the Dow ended 2.5% lower on Nov 26, the worst Black Friday selloff since 1931.
The indexes suffered from extreme volatility since the news of the extremely contagious Omicron variant surfaced in late November. A hawkish shift in the Federal Reserve policy also spooked investors.
Nevertheless, U.S. stock markets have made an impressive comeback from the Omicron-led bloodbath. The Dow Jones, which touched an intraday all-time high of 36,565.73 on Nov 8, has gained around 14.1% year to date (as of Dec 20). The S&P 500 has also shined this year. The benchmark scaled a record high of 4,712.02 at closing on Dec 10 and is up roughly 21.6% this year. Meanwhile, the tech-heavy Nasdaq Composite Index is also up 16.2% for the year. The index touched an all-time high of 16,057.44 at closing on Nov 19. Notwithstanding the concerns surrounding rapidly rising Omicron cases, the momentum in the stock markets will likely continue through the remainder of this year and into 2022.
Amid this scenario, stocks that failed to stand out in 2021 have a chance of outperforming in 2022. Stocks like Daqo New Energy Corp. DQ, Pinterest, Inc. PINS, Sarepta Therapeutics, Inc. SRPT, JOYY Inc. YY and Chindata Group Holdings Limited CD fit the bill.
Markets Look Poised for Continued Momentum
Stock markets fired on all cylinders in 2021 despite supply chain snarls, soaring inflation and the Fed’s hawkish tilt. Global supply-chain disruptions and labor shortage contributed to a surge in inflation, which is at its 39-year high. Per the Department of Labor, the consumer price index shot up 6.8% year over year in November. This marked the fastest rise since June 1982. The imbalance between supply and demand led to the spike in prices.
As widely expected, the Federal Reserve announced it will ramp up the tapering of asset purchases amid mounting inflation and a strengthening labor market. The central bank said that it will double the pace of tapering to $30 billion per month starting mid-January, which would put it on track to end the bond-buying program by March 2022, earlier than June as initially planned. Early last month, the Fed had agreed to reduce its $120 billion in bond purchases each month by $15 billion. The Fed has also pledged to keep benchmark interest rates near zero, for now, until maximum employment is achieved. The central bank's projections also signalled three interest-rate hikes next year to rein in persistently high inflation, marking a significant shift from just one rate hike it had projected in September.
The expectations of a faster pace of tapering were already baked into stock prices while Fed's announcement removed a major overhang from the markets. As a result, the three major U.S. indexes ticked higher, following the Fed's announcement.
Meanwhile, December is usually a strong month for stocks and market participants are betting heavily on the Santa Claus rally. However, worries over fast-spreading Omicron may dampen investors’ sentiments. Despite the concerns, indexes are likely to finish the year on a strong note.
The massive infrastructure development project is also expected to be a significant catalyst for the U.S. stock markets in 2022. On Nov 15, President Joe Biden signed the more than $1 trillion bipartisan infrastructure bill into law, following months of debate in Congress. The bill includes about $550 billion in new spending on roads, bridges, tunnels and the electric grid, as well as airports, broadband and other infrastructure improvements. The infrastructure spending will provide a boost to the U.S. economy and create more jobs.
Omicron is also unlikely to derail the global economy. While the variant is spreading like wildfire and has been detected in 89 countries so far (per the World Health Organization), it is believed by scientists to be lesser virulent than the Delta variant and is unlikely to cause severe illness among vaccinated people.
The U.S. economy also remains in high gear despite the supply-chain and labor crisis and accelerating inflation, aided by the progress on vaccinations. Consumer spending remains strong thanks to the vaccination drive and the massive fiscal stimulus. U.S. unemployment rate tumbled last month to a 21-month low of 4.2%. The U.S. manufacturing sector has also kept the momentum going despite the ongoing supply-chain bottlenecks, aided by strong demand for goods and an upturn in the overall economy. With strong consumer spending, rising wages and the growth in the labor market, the U.S. economy looks well set for 2022 and so do the stock markets. The Fed expects the U.S. GDP to grow 5.5% in 2021 and 4% in 2022.
5 Beaten-Down Stocks Likely to Make a Comeback in 2022
A strong showing for stock markets has set the stage for continued upside in 2022. With a favorable job scenario and high consumer and business spending underscoring a fundamentally sound U.S. economy, the momentum in the equity markets is expected to stay on firm-footing in 2022. As such, stocks that failed to shine in 2021 have a chance to rebound next year.
However, finding stocks that are likely to outperform in 2022 can be a daunting task.
Here, Zacks’ proprietary methodology comes in handy. Our research shows that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
We have picked five stocks with a market capitalization of more than $1 billion that have lost more than 20% so far in 2021, but have the potential to turn around next year based on their strong fundamentals.
Daqo New Energy: China-based Daqo New Energy is a leading producer of high-purity polysilicon. Shares of this Zacks Rank #1 stock have lost 33.8% year to date.
Daqo New Energy has expected earnings growth of 17.3% for 2022. The Zacks Consensus Estimate for DQ’s 2022 earnings has been revised 22.4% upward over the last 60 days.
Daqo New Energy is expected to gain from higher production and sales volumes for polysilicon. Higher polysilicon average selling prices driven by strong downstream demand are also expected to boost its sales and margins. DQ’s efforts to improve its cost structure are also likely to lend support to its margins. Its energy efficiency efforts and enhanced manufacturing efficiencies are contributing to lower costs.
Pinterest: California-based Pinterest, carrying a Zacks Rank #2, provides a platform to show its users (called Pinners) visual recommendations (called Pins) based on their personal taste and interests. PINS has seen its shares drop 45.8% year to date.
Pinterest has expected earnings growth of 25.8% for 2022. PINS has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 50.1%.
Pinterest is expected to benefit from user base expansion boosted by coronavirus-led social distancing norms. Availability of features like Today and Shop tab for Pinners are the key catalysts. Also, enhanced product offerings, new conversion insights, wider Pinner and advertiser base, simplified ad systems through Verified Merchant Program and Pinterest Partners Program for small businesses and improved advertisers’ ability to measure the effectiveness of their ad spend are expected to aid advertising revenues in the near term. The partnership with Shopify is helping smaller merchants to get on Pinterest.
Sarepta Therapeutics: Massachusetts-based Sarepta Therapeutics, carrying a Zacks Rank #2, is a commercial-stage biopharmaceutical company that focuses on the discovery and development of RNA-based therapeutics targeting rare and infectious diseases. We note that the stock has lost 47.8% so far this year.
Sarepta Therapeutics has expected earnings growth of 27.6% for 2022. The consensus estimate for SRPT’s 2022 earnings has been revised 24.5% upward over the last 60 days.
Sarepta Therapeutics’ first Duchenne muscular dystrophy (DMD) drug, Exondys 51, posted impressive growth in the past few quarters with the trend expected to continue. The company’s two other new DMD drugs, Vyondys 53 and Amondys 45, are also seeing strong demand trends. These three drugs have the potential to treat one-third of DMD patients. Development of its promising next-generation DMD candidate is progressing well. SRPT’s focus on developing gene therapies with diversified targets, including DMD, also looks promising.
JOYY: Based in Singapore, JOYY is a leading global video-based social media platform. Shares of this Zacks Rank #2 stock have lost 41.4% year to date.
JOYY has expected earnings growth of 560.7% for 2022. The Zacks Consensus Estimate for YY’s 2022 earnings has been revised 16.1% upward over the last 60 days.
JOYY is benefiting from Bigo Live’s robust performance. It has been riding on strong demand for user-hosted live-streaming sessions as well as user-created short-form videos. YY’s expanding partner base also allowed it to attract high-quality live streamers and content creators to its platform. It remains committed to expand the global reach of its live streaming product.
Chindata Group: Beijing-based Chindata Group, carrying a Zacks Rank #2, is a leading carrier-neutral hyperscale data center solution provider. CD shares have tumbled around 73.7% so far this year.
Chindata Group has expected earnings growth of 216.7% for 2022. The Zacks Consensus Estimate for CD’s 2022 earnings has been revised 8.3% upward over the last 60 days.
Chindata Group is gaining from its actions on client diversification. CD is also making strong progress in overseas markets as it is advancing its hyperscale greenfield development model in the Asia Pacific. Continued build-up in R&D of core technology is supporting the export of its integrated pre-fabricated datacenter modules for overseas projects. The company recently launched a new green field project in Johor State, Malaysia, which is expected to be a built-to-suit hyperscale data center with a capacity of more than 80MW to be delivered to its anchor client in several phases, starting next year.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Sarepta Therapeutics, Inc. (SRPT) : Free Stock Analysis Report
JOYY Inc. Sponsored ADR (YY) : Free Stock Analysis Report
DAQO New Energy Corp. (DQ) : Free Stock Analysis Report
Pinterest, Inc. (PINS) : Free Stock Analysis Report
Chindata Group Holdings Limited Sponsored ADR (CD) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research