With the Fed’s latest moves raising concerns that the “everything bubble” has more room to deflate, hot stocks may seem like the last area you should invest in right now. Sentiment for crypto, tech stocks, and speculative growth plays may be shifting. But that doesn’t mean you should avoid every stock that was red hot with investors during 2021.
For one, not every single too-hot-to-touch name was an electric vehicle (EV), metaverse or some sort of other “future megatrend” play. Last year, there were a few more “old school” types of stocks, with reasonable valuations, that grew in popularity with the retail investing public due to catalysts that are still in motion. In other words, they could continue to climb, as what sent them soaring in the first place carries on.
As for the names that were in the EV, metaverse or even the special purpose acquisition company (SPAC) camp, not all of them are due to tumble due to the move to “risk-off” securities ahead of rate hikes. With several of these, company-specific catalysts could outweigh changes in the stock’s fading “growth at any price” mantra.
So, as uncertainties knock back the markets, which hot stocks should you consider buying? Take a closer look at these seven, all of which could regain past hotness or get smoldering hot as 2022 unfolds:
- Digital World Acquisition Corp. (NASDAQ:DWAC)
- Ford (NYSE:F)
- Lucid Group (NASDAQ:LCID)
- Matterport (NASDAQ:MTTR)
- Pfizer (NYSE:PFE)
- Virgin Galactic (NYSE:SPCE)
- Upstart Holdings (NASDAQ:UPST)
Hot Stocks in the New Year: Digital World Acquisition Corp. (DWAC)
Better known as the Trump SPAC, this is a name I’ve written off as more hype than substance in past articles. There are many ways DWAC stock (trading for around $67 per share today) could tumble back to its $10 per share offering prices.
However, there is an upcoming development that could help make it a meme stock again. As you likely know, this is referred to as the “Trump SPAC,” since it’s acquiring former President Donald Trump’s social media startup, Trump Media & Technology Group (TMTG). On Feb 21, Truth Social, the main platform of this venture, goes live.
If this initial launch proves successful, it may help bolster confidence in this still-spending SPAC deal, and go a long way to help justify said deal’s high implied valuation (more than $10 billion). Subsequent news could help further prove the skeptics wrong, and help support the bull case for this company, which largely hinges on Trump convincing his fan base to ditch mainstream social media sites, and move to his platform.
One of the riskier hot stocks, caution is key when investing in Digital World Acquisition. There is uncertainty over whether Truth Social will become a hit. In addition, factors like its private investment in public equity (PIPE) financing could dilute shareholders.
Ford (F)
It’s an understatement to say that shares in Ford have been electrified by the automaker’s move into EVs. Zooming more than 67% in the past six months, its performance as of late has been on par with pure plays in the space, like Lucid.
Nevertheless, despite its big run up, F stock may still have plenty of juice left in the battery. Much like how electric vehicle startups like Lucid have soared after making more progress, this incumbent automaker could make similar moves when its all-electric version of its F-150 pick up (the lightning) debuts later this year.
Yes, you may be a bit concerned about downside risk. After all, other EV plays have been volatile, due to the forthcoming interest rate increases. The prospect of higher rates have made growth stocks less appealing. However, that’s not so much an issue with this electrification play. Still valued like a traditional automaker, it still trades at a reasonable price-to-earnings (P/E) multiple (10.5x).
As Louis Navellier put it recently, Ford is a growth play even value investors can learn to love. Trading at multi-decade highs, but with the potential for it to be one of the hot stocks that stays hot, consider it a buy at today’s prices (around $24 per share).
Hot Stocks in the New Year: Lucid Group (LCID)
With the market’s rotation from growth to value, it may seem like not-so-hidden EV plays like Ford are better buys than EV “story stocks” like Lucid. Yet, despite the pressure speculative growth plays are experiencing now, shares in this luxury maker of electrified vehicles could see another year of gains in 2022, albeit at a more modest pace.
That is, at around $45 per share today, there may be room for LCID stock to make it back toward its all-time high ($64.86 per share). Or, at least there’s room for it to get back to the mid-$50s per share. That’s what it traded for during its last bit of acceleration back in November.
Assuming, of course, that it manages to hit its output target of 20,000 for this year. Also, that it demonstrates it will be able to scale up to six-figure annual production, with minimal hiccups. Achieving this will help to justify and grow its current valuation of $74.3 billion.
While it has a shot to post positive returns in 2022, keep in mind LCID stock could experience more downward pressure in the months ahead. The growth-to-value rotation could knock it down further. And don’t forget about the upcoming expiration of its insider lockup period on Jan 19, as our Samuel O’Brient recently reported. You may want to wait for more weakness before buying.
Matterport (MTTR)
Down more than 50% in less than two months, it’s debatable whether MTTR stock is still hot anymore. In the fall, when excitement over metaverse plays was in full swing, shares in the real estate mapping software provider went on an incredible run.
As of this writing, it’s given back these gains, and then some. At around $15.50 per share today, it may have more room to fall before it bottoms out. Like I put it in late December, Matterport shares are at the mercy of the market. Then again, if the market fully absorbs monetary policy changes, there may be a path for this former SPAC to make (at the very least) a partial recovery.
How? For one, by beating expectations when it next reports quarterly results. You may recall last quarter, the company underwhelmed when it fell short of estimates, and cut its outlook. However, much of this may have been due to the transition of its revenue model from license-based to subscription-based. Temporarily, this has affected its operating performance.
Starting next quarter, and the quarters ahead, strong subscription growth numbers could excite investors once again, helping to send it back above $20 per share. Another wave of “meta mania” could do the trick as well, although its meta catalyst for now is a secondary one at best.
Hot Stocks in the New Year: Pfizer (PFE)
Although one of the vaccine providers from the start, a year ago Pfizer didn’t see much benefit from having a coronavirus catalyst. Yet lately, Covid-19 has been helping shares in the pharmaceutical giant make a big bolt higher.
Not so much, though, due to its vaccine of the most widely-used ones worldwide. It’s recent movement has been due to Paxlovid, the Covid-19 antiviral pill the drug maker has developed. Obtaining emergency use authorization (EUA) for it from the U.S. Food and Drug Administration, the U.S. Government has already ordered 20 million treatment courses.
As Bank of America’s Geoff Meacham argued earlier this month, sales for Paxlovid could come in better than expected. Projections call for it to hit sales of $20 billion. With this, plus increased confidence that its research and development (R&D) investments will make up for upcoming patent expirations, the analyst has upgraded the stock from a “neutral” to a “buy” rating and given it a $70 per share price target.
Much like Ford, Pfizer is an old-school company, boosted by a timely catalyst, yet still trades at a low valuation. With its P/E multiple of 11.1x, Pfizer has room to run in 2022 from both expected earnings growth (from $4.24 per share last year, to $6.18 per share this year) and possible multiple expansion, as the market becomes even more confident in this hot stock’s long-term prospects.
Virgin Galactic (SPCE)
With its big drop back to earth, admittedly SPCE stock doesn’t exactly look “hot” right now. Especially after shares in the “deSPACed” space exploration play briefly fell below their blank-check offering price in early January. So, why should you consider it a hot stock, much less one that could get hotter in 2022?
Yes, the upcoming rise in interest rates are going to make publicly-traded pre-revenue companies like this one even less appealing. Still, now down to around $12.50 per share, the chance it rockets back “to the moon” may outweigh the risk that it makes a slide down to single-digit prices.
Sure, this depends heavily on whether it continues to make progress with its business model. Despite promising reservation numbers, there have been continued delays with the launch of its commercial spaceflight service. These delays could carry on through the new year. It’s also not exactly encouraging two key insiders, Richard Branson and Chamath Palihapitiya, engaged in heavy insider selling throughout 2021.
Among the hot stocks described here, this may be the riskiest. Cautiously approaching it may be the best move, if you decide to buy. However, going from hot to cold (or perhaps just lukewarm), positive developments could warm up sentiment for it once again.
Hot Stocks in the New Year: Upstart Holdings (UPST)
Upstart Holdings, which operates a platform that helps lenders assess credit risk using artificial intelligence, is a name that went up too far, too fast late last year. Investors took its high levels of revenue growth and ran with it, taking shares to an unsustainable valuation.
But now, down more than 70%, it may be time to scoop up this fintech play. I’m not saying UPST stock, at around $120 per share today, is going to re-hit its $401.49 per share high between now and December 2022. As its rate of growth slows down, it may take some time before it can reach such levels again.
Revenues more than tripled in 2021, yet are expected to grow by 48.9% in 2022. This, however, is more than accounted for in its current valuation. In other words, a P/E of 60x may be more than justified. Continued adoption of its platform points to above-average rates of growth in the years ahead.
Already profitable, despite still being in the early stages of scaling up, Upstart has a lot more going for it than other once richly-priced SaaS stocks currently getting beaten down. Likely at or near the point where it bottoms out, consider buying it while it’s in cooldown mode.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.