The Fed Raises Interest Rates: These Growth Stocks May Double Again in 2022
Federal Reserve Chairman Jerome Powell recently confirmed that the central bank will raise interest rates this year, and previous comments suggest that several rate hikes may be on the way. Rising interest rates have generally meant a much weaker backdrop for growth stocks, but there are also companies in the category that are already trading at deep discounts and could be on the verge of big gains. despite less favorable macroeconomic conditions.
With that in mind, a panel of Motley Fool contributors have profiled stocks that may still be capable of doubling before the end of the year. Read on to see why they identified Fiver International (NYSE: FVRR), pinterest (NYSE: PINS), PayPal (NASDAQ: PYPL), and MercadoLibre (NASDAQ: MELI) as stocks that could thrive on macro pressures and double in 2022.
This beaten title has a huge advantage
Keith Noonan (Fiverr International): Fiverr International provides an online marketplace for contract work, and it’s poised to play a big role in the booming gig economy. In addition to providing new work opportunities for individuals, hiring through Fiverr’s platform can provide big benefits for companies. Compared to a full-time employee, hiring a remote worker on a contract basis reduces office expenses, payroll taxes, and benefits. It is this dynamic in particular that makes Fiverr a stellar player in the long run.
As the Fed prepares to raise interest rates this year, the market is bailing out companies that are not close to posting profits or that rely heavily on debt to finance their operations. The good news is that Fiverr doesn’t fit into any of these categories.
The company actually posted a small adjusted profit in the third quarter, and its 42% year-over-year sales growth and 83.3% gross margin in the quarter indicate huge growth potential. benefits. The company also ended the third quarter with about $145.6 million in cash and current assets versus just $426,000 in long-term loans and other non-current liabilities.
Currently, Fiverr International is spending heavily on marketing and developing its technology platform, but it should be able to reduce its spending as a percentage of sales amid strong momentum for the business. This should ease the transition to strong earnings growth. With the stock down about 55% over the past year and a staggering 75% from its 52-week high, Fiverr could possibly double even if the Fed throws curve balls.
Enter the wrong market sales
James Brumley (Pinterest): To be clear, the average investor probably shouldn’t specifically aim to double their money over the course of a year, especially if it’s using the bulk of a portfolio’s value to make that turn. . On the other hand, if it’s happening with some of your “play money”, so to speak, then it’s happening.
With that as a backdrop, I don’t think the most viable way to turn $1,000 into $2,000 in 2022 is to use leveraged instruments like stock options or exchange-traded funds to leverage like ProShares UltraPro S&P 500 Fund. On the contrary, the healthiest and most accessible way to land a home run this year is to enter one of the stocks that the market unnecessarily beat last year.
A prospect like Pinterest comes to mind. This stock was all the rage in 2020 when people were confined due to the pandemic and bored to death. However, the shares fell more than 60% from their peak in early 2021, once investors realized they were expecting a little more monetization from this increase in traffic than Pinterest was. ready to produce at the time. The irony is that Pinterest has implemented several new initiatives in the meantime that should put the company on this path to increased revenue. Analysts expect revenue growth of 25% this year alone.
Pinterest isn’t your only such option, of course. It’s just an example. There are a bunch of solid companies behind dismal performing stocks over the past few months. You just have to go out and dig a little.
Stick to your beliefs whether the market agrees with you or not
Daniel Foelber (PayPal and MercadoLibre): When thinking about the stock that may double in 2022, it’s important to understand how difficult that is to accomplish. For example, the average annual return of the S&P500 is only 8%. Doubling your money “normally” takes nine years. However, the S&P 500 has been much hotter since the financial crisis. In fact, the average return between 2009 and 2021 was 14.2% per year, a gain of 428% in total over this 13-year period.
The S&P 500 also doubled between January 1, 2019 and December 31, 2021, a feat it only achieved in the late 1990s and may never again.
I think it’s never a good idea to pick a stock hoping it will double in the short to medium term. The stock market can be unpredictable a year from now. For example, the three worst performing sectors in the S&P 500 in 2020 were energy, real estate and financials. The exact opposite happened in 2021, when the average energy sector stock gained over 50%, real estate was the second best performer at 46% and financials was the third best performer at 35% .
Similarly, pandemic-related growth stocks like Zoom, Teladoc, and Fiverr all more than doubled in 2020, gaining 730%, 396%, and 139% respectively. But in 2021, each of these three stocks has lost between 42% and 54% of its value.
The lesson here is that chasing what works a year and throwing away what doesn’t is usually a great way to lose money. Sticking to companies you understand that have excellent long-term growth prospects reduces the randomness. In terms of current best buy, for me, it’s a high-quality, industry-leading growth stock like PayPal or MercadoLibre. Both stocks are down 40% from their 52-week highs, but each company has incredible long-term potential. Anyone can guess if either stock doubles this year. But I’m confident that both will double their current prices at some point in the future.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.