Over the past few years, the stock market has gone through a lot, and unforeseeable circumstances have proven many experts wrong. Entering 2022, strategists were optimistic as we entered the economic recovery. However, the stock market continues to suffer this year, and inflation and loans are only making things worse.
When choosing which stocks to invest in this year, you must be realistic and consider your risk tolerance. You invest in stocks because you like a moderate-to-high level of risk, but you want to avoid the higher risk of cryptocurrency while trying to maximize your income.
Stocks never go up in a straight line, and savvy investors need to learn all they can before they start investing in companies.
Here are the stocks to keep your eye on this year.
Stocks To Keep Your Eye on in 2022
1. Walt Disney
Disney is an unstoppable force, but theme parks were shut down or had limited capacity for years, and no one could go to the movies anymore.
However, Disney was already prepared after launching their streaming service Disney+ in 2019. So when millions of people were left home with nothing to do, they started streaming their favorite movies and helped keep their kids entertained with Disney shows.
Disney owns many popular franchises, including Star Wars, making it a great streaming service for children and adults, and the streaming service is a strong Netflix competitor.
However, as people go back to the office, children are back at school, and people can now spend time together again, you should keep your eye on Disney this year to see if there are any drops.
While most streaming services may have fewer viewers now that we're not trapped inside, many people will keep their subscriptions.
And don't forget, the parks are now open again, so investing in Disney is a wise choice because they have additional revenue streams to keep the money pouring in.
2. Uber Technologies
When's the last time you hailed a cab? Thanks to Uber, you no longer have to stand in the street to get a driver to stop for you just so you can make it home in time to watch your favorite Disney movie.
Uber has been in the news a lot in recent years, especially where its contractors are concerned. The ride-sharing platform operates in over 60 countries to connect drivers with riders, and Uber Eats connects hungry people to hundreds of restaurants and delivery drivers.
Even though Uber has been around for years, it recently turned a profit for the first time ever, making it a great stock to consider.
But, of course, there's a lot of debate surrounding Uber and how it treats its drivers, so you never know what could happen as the debate continues.
3. Iron Mountain
Iron Mountain was found in the early 1950s and is in the “Specialized REIT” industry. This REIT is unique in the fact that it develops storage facilities for both physical and digital records. Even more impressive is its wide moat that it has based on its customer base.
It provides storage and information management services to over 225K customers, including some of the largest institutional clients in the world. On top of that, they serve 95% of the Fortune 1000 companies.
Look at this excerpt from their most recent earnings call.
Joshua Lutkemuller, CFA Investment Advisor and Head of Portfolio Strategy at Strongside Asset Management LLC recommends investing in Iron Mountain stocks in 2022
Here is what he had to say when we asked him about the best stocks to keep an eye on in 2022;
When I was a Mortgage Trader for USAA, my team utilized Iron Mountain for mortgage data.
As each week goes by, and the stock market and economic backdrop becomes less certain, I strength my resolve around positioning yourself into companies with distinct competitive advantages. Markets showed a fair amount of strength last week, as economic data has come in weaker, market participants are expecting a Federal Reserve that might loosen up monetary policy in the coming months. Of course, I don’t have a crystal ball and nor am I interested in making this type of bet, which is exactly why Moat Analysis continues to be my bread and butter.
Moat This, Moat That
I find that companies with a customer base that is based on institutional clientele tends to hold up better during turbulent times, as there are big signs that the average consumer is weakening.
Iron Mountain is attractive for precisely this very reason, they are a leader for protecting global businesses and their assets.
And given the strict regulations in place regarding customer data, not many alternative solutions exist.
Due to the complexity of this industry, customers are extremely unlikely to seek out another provider because it would be expensive, which allows Iron Mountain to take advantage of cost switching.
The Future of IRM’s Growth
Iron Mountain’s core legacy business is physical record storage. However, like many other companies, they are during a digital transformation into digital data management. IRM is consistently striving towards building a strong portfolio of data centers to capitalize on this thematic trend that I believe is here to stay.
The chart above shows annual revenue of just under $4.5B, which comes in at an annualized growth rate of 4.1% over the past 10 years and a 5-year growth rate of just over 5%. The chart below shows IRM struggled in 2020, with a YoY growth rate of -2.71%, due to COVID-19 and the difficulties it presented for many companies. Thankfully, their growth recovered, and they went on to show an 8 print on revenue growth for 2021.
On a trailing 12-month basis, we are seeing a growth rate of just under 12%.
Another piece of the puzzle that I think is crucial is their Global Data Center segment, which showed 15.5% organic growth in 2021, which was leaps and bounds above the Global Records and Information Management segment.
Iron Mountain has been scaling its capacity over the past few years and I believe this will be the key to their success.
To boost this narrative, Iron Mountain acquired ItRenew, which is a leader in data center lifecycle management solutions. During the Q1 earnings call, key management also noted that the acquisition was going smoothly.
Dividend Growth is Meh…
Going into 2022, Iron Mountain had nine consecutive years of dividend growth, but in the first quarter of 2022, they chose not to grow their dividend. This name is not expected to be an immense double digit dividend grower, but at the current yield, it is still attractive.
Over the past 5 years, it has had a 2.99% CAGR on the Dividend Growth Rate and in the past 3 years, a .73% CAGR.
- Iron Mountain has strong pricing power, which has allowed it to generate impressive AFFO/share growth. It is seeing robust leasing trends in its data center business.
- IRM is firing on all cylinders with a fortress balance sheet and solid growth prospects.
- Despite the high debt level, the company has a sustainable capital allocation strategy and is now a key data center player.
- The current yield of 4.66% compared to the average yield of 7.1% over the past five years leads it to be expensive on a yield basis
- The 2021 Price/AFFO ratio is 15.7x which is higher than the 5-year average of 11.2x.
Valuation Perspective- Current the AFFO is sitting at around $3.47/share, and the current Price/AFFO ratio 13.84x using a share price of $48.18.
Over the past five years, the average P/AFFO ratio was 11.2x. Based on this historical measurement, it can appear to be expensive, but when we look at forward P/AFFO consensus of $3.78, it brings the 2022 Forward P/AFFO to 12.74x.
With Iron Mountain’s guidance to continue to grow revenues by mid-single digits and maintain their current operating margins over the next 5-10 years, this is a great entry point with modest appreciation but great income.
Technical Analysis- IRM looks like it is bouncing near the 200 Day moving average, which has shown some decent support, but in the past year it has broken through the 200 Day moving average 3 times.
The 15-Day moving average is below the 50 but above the 200 Day, which makes this more of a neutral picture. Technically, this good be a good accumulation zone if you are comfortable with the value.
Personally, I would say this name is more in the fair value range currently. Although I think you can find better deals in the market, if you are looking to scale and diversify your portfolio, adding a specialized REIT like IRM is not a bad bet at all.
Summary- Iron Mountain is a very wide moat stock with an extremely attractive yield and a fair growth story. If you are looking for added stability in your portfolio and a little extra income, Iron Mountain could be a great name to add to your REIT portfolio, especially if you are a believer in data storage.
This stock is currently down -6.12%, which is outperforming the broader major market indices by a wide margin.
If you currently hold this stock, I can’t find any reasons why you would want to divest out of this name as it exemplifies quality now.
4. Alibaba Group
Alibaba is an eCommerce giant that recently went through an anti-monopoly probe by the Chinese government, and shares lost more than 60%. However, many experts believe that Alibaba can make a comeback in 2022 since it's the leading eCommerce company in China and continues to grow.
While growth won't be as strong as it has been in recent years, it's still an option worth considering.
AmerisourceBergen (ABC) is a pharmaceutical distributor for the US and internally with retail, hospital, and veterinarian customers.
ABC recently acquired the Alliance Health distribution business in Europe and North Africa, making it poised for more growth throughout the next few years. ABC is also a distributor of COVID-19 vaccines in Canada.
6. Cvs Health
Most people live close to a CVS, where they get their prescriptions filled. CVS Health is more than a pharmacy with offerings like the Minute Clinic and a convenience store all in one, making it a great stock to consider this year as more people are taking action to improve their health.
CVS offers everything from greeting cards to snacks, making them a better option for convenience than your local gas station.
Who doesn't love coffee and tea? Unfortunately, Starbucks took a hit in the summer due to a slow recovery in China.
However, most experts expect Starbucks to bounce back, even though many skittish investors have been scared off for the time being.
Starbucks is one of the world's favorite coffee companies, and it grows steadily every year.
8. American Eagle Outfitters Inc
American Eagle has been around for many years and is a favorite brand among teens, especially with the success of the Aerie line.
While American Eagle share prices have come down in the last year, many analysts believe that they're great stocks to invest in because everyone needs affordable yet fashionable clothing.
Salesforce is a popular CRM and is used by many Fortune 500 companies to improve their sales process and build better customer relationships.
Salesforce has recently expanded into a complete communications platform after acquiring Slack and launching Commerce Cloud.
Costco is a retail giant. As many retailers were faced with rising costs and gas prices on top of inflation, Costco remained strong and hasn't been impacted by pricing problems due to its membership-based model that affords them the ability to offer lower prices for the same goods.
Costco can raise prices as long as those increases are in line with their competitors and allow them to still remain affordable and competitive.
While Costco will most likely raise its prices, experts don't expect people to cancel their memberships that provide access to bulk goods at a lower price.
Additionally, as costs rise at other retail establishments, more people are likely to join Costco, providing the company with a boost as long as it maintains its high membership retention rate.
The stock market will continue to evolve through 2022 and beyond, and investors must pay attention to the ups and downs that can hurt their finances.
When searching for new investment opportunities to diversify your portfolio, do your due diligence and learn as much as you can about the company before you invest.
Hopefully, we've just given you insight into some of the best options to keep an eye on this year, but it's up to you to find more options that match your budget and can increase your return on investment.