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2 Top Stocks to Buy for the New Year

By Daniel Sparks – Dec 24, 2021 at 8:05AM

Key Points

  • Meta Platforms is growing both its top and bottom lines at a rapid clip.
  • The Facebook parent's stock currently trades at a bargain valuation with a low price-to-earnings ratio relative to its earnings growth potential.
  • Even as its business grows nicely, Tractor Supply pays a meaningful dividend and is repurchasing its shares.

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Two very different companies -- one in tech and one in retail -- offer investors long-term growth potential and durable business models.

With talks of likely interest rate hikes from the Federal Reserve in 2022 and the coronavirus pandemic still making the rounds, one key characteristic investors should look for in investments going into the new year is resilience. In other words, some good traits to look for are valuations that make sense relative to a company's growth trajectory and market opportunity, and durable business models with proven track records. While there's no way to avoid volatility, owning resilient companies can at least help investors better weather near-term challenges (mentally and emotionally) since they know their investments have what it takes to endure.

Two companies that fit this description are Meta Platforms (META 3.35%) and Tractor Supply Company (TSCO -0.89%). Here's a look at why both of these stocks are good bets for 2022 and beyond.

A person looking at charts on a laptop.

Image source: Getty Images.

Meta Platforms

The case for Meta Platforms is straightforward. The tech stock's valuation is very cheap relative to the company's recent growth. Consider that the Facebook parent's trailing-12-month revenue and net income of $112 billion and $40 billion, respectively, are up from $71 billion and $18 billion in 2019. Even with such staggering recent growth, Meta Platforms trades at only 24 times its current level of earnings.

While the company is running into some near-term growth headwinds related to Apple's recent changes to advertising tracking and measurement, it's not like the suppressed growth Meta Platforms is expecting is poor. Management guided for fourth-quarter revenue to be between $31.5 billion and $34 billion. The midpoint of this guidance range represents 17% revenue growth. Further, analysts are still modeling for exceptional earnings-per-share growth over the next five years. On average, analysts currently expect Meta Platforms' earnings per share to compound at a growth rate of 21% annually over this period. 

Meta Platforms' network effect of billions of monthly active users makes its business very durable. Not only has the company's core Facebook platform consistently grown larger with no close challenger, but the company's other social networks with more intense competition (namely Instagram) have shown they can easily deploy features that imitate successful competitors, helping them stay relevant.

Tractor Supply Company

Some city folk may have never even stepped foot in a Tractor Supply store. But investors shouldn't overlook this investment just because they're not familiar with the retailer. Tractor Supply, which specializes in rural lifestyle, has a strong retail niche and is capitalizing well on several different important growth catalysts, including private label and exclusive brands, pet food, and e-commerce. Its balanced business has helped revenue grow 24% year over year in the trailing 12 months, and helped earnings per share grow 22%. 

Tractor Supply is notably mastering e-commerce in a market where many of its customers live farther apart than people do in the city. These communities come with unique challenges that Tractor Supply is able to develop expertise in, and the company's strategy is working. Tractor Supply said on its most recent earnings call that its e-commerce sales increased at a rate faster than 40% year over year.

While the stock's price-to-earnings ratio of 29 isn't exactly cheap, the company's positioning as the lead retailer for the rural lifestyle makes this business worth paying up for. Given how specialized Tractor Supply is, it would be very difficult for a competitor to topple it. The company also pays a dividend and is regularly repurchasing shares, supplementing shareholder value creation.

Facebook and Tractor Supply together represent two solid ideas from very different industries that provide meaningful long-term growth potential for investors.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns and recommends Apple and Meta Platforms, Inc. The Motley Fool recommends Tractor Supply and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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