In this article, we take a look at 12 cheap stocks to buy that outperformed in 2022.
A cheap stock is a stock of a company that’s trading for below its intrinsic value.
Given that the Federal Reserve has raised interest rates substantially this year to fight inflation, the broader market has declined in 2022 and many cheap stocks have become even cheaper this year as their valuations have decreased.
In terms of the three major indexes, the S&P 500 has declined 16.7%, the Dow Jones Industrial Average has retreated 7.16%, and the Nasdaq has fallen 29.44% in 2022 as of December 14.
As a result of the market decline, there are many stocks that trade for relatively low forward P/E ratios. If there is a recession next year, some of the stocks with the low forward P/E ratios might not look as cheap because many companies might not earn as much as analyst estimates. If companies miss earnings substantially and lower their outlooks, analyst earnings for the future could come down and their forward P/E ratios could go higher.
Given forward P/E ratios are not very dependable if companies miss their estimates, some investors use analyst price targets in addition to identifying stocks with competitive advantages to decide whether a stock is cheap or not.
2022
While the market has declined this year, some cheap stocks have outperformed the broader market for various reasons. Some cheap stocks have experienced strong growth despite macroeconomic headwinds. Other cheap stocks have declined less given the strength and stability of their businesses.
As for the future, it remains to be seen whether there will be an economic slowdown in 2023. Given the uncertainty, it could be a good idea for long term investors to own a well diversified portfolio of stocks across many different sectors.
Pixabay/Public Domain
Methodology
For our list of 12 Cheap Stocks to Buy That Outperformed in 2022, we picked stocks with substantial competitive advantages that either trade below the average analyst price target or trade for below their intrinsic values.
We then filtered the stocks to ensure that they outperformed the S&P 500 year to date as of December 14.
We then ranked the stocks based on the number of hedge funds in our database that held shares of the same stock at the end of the third quarter.
12 Cheap Stocks to Buy That Outperformed in 2022
12. General Dynamics Corporation (NYSE:GD)
Year to Date Return as of December 14: 20.03%
Number of Hedge Fund Holders: 35
While the S&P 500 has declined 16.7%, General Dynamics Corporation (NYSE:GD) has surged 20.03% in 2022 given strong earnings. For Q3, the global aerospace and defense company earned $3.26 per share on sales of $10 billion versus the consensus of $3.15 per share on revenue of $9.92 billion. Analysts see more upside in the future given the average target price of $271.25 per share.
Alongside Johnson & Johnson (NYSE:JNJ), Mastercard Incorporated (NYSE:MA), and Visa Inc. (NYSE:V), General Dynamics Corporation (NYSE:GD) is a cheap stock that has outperformed the market in 2022.
11. Dollar Tree, Inc. (NASDAQ:DLTR)
Year to Date Return as of December 14: 3.78%
Number of Hedge Fund Holders: 37
In terms of 2022 when all three major indexes have declined, Dollar Tree, Inc. (NASDAQ:DLTR) has done relatively well with a rally of 3.78%. Dollar Tree, Inc. (NASDAQ:DLTR) is considered a defensive stock given its retail stores sell low cost products.
Given the high inflation this year, demand for Dollar Tree, Inc. (NASDAQ:DLTR) has increased. In Q3 2022, the company’s consolidated net sales rose 8.1% year over year to $6.94 billion and its diluted earnings per share increased 25% year over year to $1.20.
Considering the quality of its business, analysts like Dollar Tree, Inc. (NASDAQ:DLTR) as they have an average price target of $165.36 per share. Of the 920 hedge funds in our database, 37 owned shares of Dollar Tree, Inc. (NASDAQ:DLTR) at the end of September, ranking the stock #11 on our list of 12 Cheap Stocks to Buy That Outperformed in 2022.
10. International Business Machines Corporation (NYSE:IBM)
Year to Date Return as of December 14: 10.16%
Number of Hedge Fund Holders: 40
International Business Machines Corporation (NYSE:IBM) is one of the best performing tech stocks of the year given its 10.16% rally in 2022 as of December 14. Although the stock actually trades slightly higher than the average analyst price target of $141.66 per share, International Business Machines Corporation (NYSE:IBM) has substantial long term intrinsic value given its earnings power. If it can succeed in quantum computing, International Business Machines Corporation (NYSE:IBM) would be even more attractive as well.
40 hedge funds in our database owned shares of International Business Machines Corporation (NYSE:IBM) at the end of Q3, ranking the stock #10 on our list of 12 Cheap Stocks to Buy That Outperformed in 2022.
9. Canadian Pacific Railway Limited (NYSE:CP)
Year to Date Return as of December 14: 9.27%
Number of Hedge Fund Holders: 41
Canadian Pacific Railway Limited (NYSE:CP) has rallied 9.27% this year while the broader market has declined given the railroad company’s strong earnings results. For Q3, Canadian Pacific Railway Limited (NYSE:CP)’s core adjusted diluted EPS rose 15% year over year to C$1.01 and total sales rose 19% year over year to C$2.312 billion. Analysts have an average price target of $81.86 per share.
Bill Ackman commented on Canadian Pacific Railway Limited (NYSE:CP) in an August investor letter,
CP is a high-quality, inflation-protected business led by a best-in-class management team that operates in an oligopolistic industry with significant barriers to entry. With an improving volume and pricing outlook combined with the upcoming transformational acquisition of Kansas City Southern (“KCS”), we believe that CP’s prospects are bright.
CP reported revenue growth of 7% in the second quarter as pricing and mix, fuel surcharge pass-throughs and foreign exchange more than offset a small decline in volumes. CP is leveraging the strong pricing environment to renew contracts at an average price increase of over 6%. Pricing directly benefits earnings as rails pass on increases in fuel and other expenses to customers through contractual fuel surcharges and CPI escalators. In addition to earnings growth, high inflation should help rail transportation take share from trucking and lead to incremental volume growth over time. Customers are choosing cheaper transportation solutions as prices rise, and CP’s mission-critical rail service is often the cheapest or only viable method for transporting heavy freight over long distances. High fuel prices and wage gains also disproportionally increase the cost of trucking, which is up to three times less fuel efficient and much more labor intensive than rail transportation.
8. AT&T Inc. (NYSE:T)
Year to Date Return as of December 14: -1.51%
Number of Hedge Fund Holders: 61
Although its stock hasn’t done well in the last five years, AT&T Inc. (NYSE:T) nevertheless outperformed the market in 2022 given its decline of 1.51% versus the S&P 500’s decline of 16.7% year to date. One reason could be AT&T Inc. (NYSE:T)’s valuation with its forward P/E ratio of 7.18 as of December 15, which is pretty attractive if the telecom can earn what analysts expect.
In terms of expectations, analysts estimate AT&T Inc. (NYSE:T) will earn $2.60 per share in 2022, $2.54 per share in 2023, and $2.60 per share in 2024.
7. Oracle Corporation (NYSE:ORCL)
Year to Date Return as of December 14: -6.92%
Number of Hedge Fund Holders: 67
The average analyst thinks there’s upside in Oracle Corporation (NYSE:ORCL) despite the stock of the enterprise software company declining 6.92% year to date. In terms of average estimates, analysts have a price target of $87.25 per share and they estimate Oracle Corporation (NYSE:ORCL) will earn $4.88 per share in 2023, $5.55 per share in 2024, and $6.33 per share in 2025.
67 hedge funds in our database owned shares of Oracle Corporation (NYSE:ORCL) at the end of Q3, ranking the stock #7 on our list of 12 Cheap Stocks to Buy That Outperformed in 2022.
6. Walmart Inc. (NYSE:WMT)
Year to Date Return as of December 14: 1.40%
Number of Hedge Fund Holders: 68
Walmart Inc. (NYSE:WMT) shares have rallied 1.4% this year, easily outpacing the S&P 500’s decline of 16.7% in the same period. Although inflation has been a headwind for a lot of companies this year, Walmart Inc. (NYSE:WMT) has been able to arguably benefit from it by gaining more customers with its low retail prices.
Analysts like Walmart Inc. (NYSE:WMT) as they have an average price target of $160.50 per share.
Like Walmart Inc. (NYSE:WMT), Johnson & Johnson (NYSE:JNJ), Mastercard Incorporated (NYSE:MA), and Visa Inc. (NYSE:V) are cheap stocks that have outperformed the market this year.
5. American Express Company (NYSE:AXP)
Year to Date Return as of December 14: -8.38%
Number of Hedge Fund Holders: 68
Although its shares are down 8.38% year to date, American Express Company (NYSE:AXP) has nevertheless been one of the better performing financial stocks this year as its business has not been affected that much by the macroeconomic headwinds so far.
Following the company’s third quarter earnings release in October, American Express Company (NYSE:AXP) CEO Stephen Squeri said to Yahoo Finance, “We’re not seeing any changes in consumer spending. We have strong credit quality.”
Whether that will change depends on how the economy does but analysts are bullish on American Express Company (NYSE:AXP) with an average price target of $168.17 per share.
4. The Procter & Gamble Company (NYSE:PG)
Year to Date Return as of December 14: -6.18%
Number of Hedge Fund Holders: 69
The Procter & Gamble Company (NYSE:PG) ranks #4 on our list of 12 Cheap Stocks to Buy That Outperformed in 2022 given 69 hedge funds in our database owned shares of the stock at the end of Q3.
While analysts have a slightly lower average price target than what the stock is trading for, The Procter & Gamble Company (NYSE:PG) has substantial intrinsic value that could offer upside in the long term. Given its portfolio of leading brands, The Procter & Gamble Company (NYSE:PG) has growth potential if it maintains its market share and if the Federal Reserve wins its battle against inflation.
Although shares are down 6.18%, The Procter & Gamble Company (NYSE:PG) stock has rallied fairly significantly since its October lows.
3. Johnson & Johnson (NYSE:JNJ)
Year to Date Return as of December 14: 4.79%
Number of Hedge Fund Holders: 85
Healthcare giant Johnson & Johnson (NYSE:JNJ) has rallied 4.79% in 2022 given its strong business and overall growth potential.
Although Johnson & Johnson (NYSE:JNJ)’s adjusted diluted EPS fell 1.9% year over year to $2.55 in the third quarter, the company’s operational sales rose 8.1% year over year. With less headwinds in a more normalized economic environment, Johnson & Johnson (NYSE:JNJ) will likely be able to earn more given its sales growth.
In terms of analysts, they think there’s potential for more upside for Johnson & Johnson (NYSE:JNJ) as they have an average price target of $184.40 per share. 85 hedge funds in our database owned shares of Johnson & Johnson (NYSE:JNJ) at the end of Q3, ranking the stock #3 on our list of 12 Cheap Stocks to Buy That Outperformed in 2022.
2. Mastercard Incorporated (NYSE:MA)
Year to Date Return as of December 14: -3.62%
Number of Hedge Fund Holders: 146
Mastercard Incorporated (NYSE:MA) fell 3.62% this year given financial valuations across the market have declined. Nevertheless, the payments leader has done well in terms of earnings. For Q3, Mastercard Incorporated (NYSE:MA)’s adjusted diluted EPS rose 13% year over year to $2.68 and its net sales rose 15% year over over year to $5.8 billion. In December, the company’s board also approved a new share purchase program of up to $9 billion.
Analysts think Mastercard Incorporated (NYSE:MA) could rally in the long term as they have an average price target of $399.37 per share.
1. Visa Inc. (NYSE:V)
Year to Date Return as of December 14: -3.66%
Number of Hedge Fund Holders: 165
Visa Inc. (NYSE:V) ranks #1 on our list of 12 Cheap Stocks to Buy That Outperformed in 2022 given 165 hedge funds in our database owned shares of the payments leader at the end of the third quarter. Although shares of Visa Inc. (NYSE:V) have declined 3.66% year to date, they have outperformed the S&P 500’s decline of 16.7% in the same period. There could be upside in the long term as analysts have a price target of $249.36 per share.
RiverPark Large Growth Fund commented on Visa Inc. (NYSE:V) in a Q3 2022 investor letter,
We reinitiated a small position in Visa, which we had previously owned for years (selling out of the position at higher levels in February). We continue to believe that the long-term secular growth trend towards digital payments remains intact and has been further enhanced by the COVID crisis. The growth in debit cards, contactless payments, e-commerce, and now, buynow-pay-later (BNPL), are all driving digital payment penetration, and we continue to be impressed with the long-term growth potential of V (and our other payment holdings Mastercard, Adyen, and PayPal).
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Disclosure: None. 12 Cheap Stocks to Buy That Outperformed in 2022 is originally published on Insider Monkey.
