It was a wild year in the market as investors juggled ongoing pandemic recovery, inflation, monetary policy, high valuations, and geopolitical issues. There were certainly big winners and losers. Some of the largest stocks moved the market last year, and they reveal important investment themes as we move into 2022.
1. Nvidia
Nvidia (NVDA 1.46%) is a semiconductor stock that grew into one of the biggest companies in the world this year. It's up more than 110% year to date. The company has been a leader in the gaming graphics processing unit (GPU) market for years, but it is gaining traction in a wider variety of applications, such as data centers for cloud computing, artificial intelligence, and robotics.
That appreciation was driven by excellent fundamentals, as Nvidia delivered excellent results despite ongoing supply chain issues. The company's revenue is up 65% over the first nine months of its fiscal year, and operating income has climbed 130%. Its forward price-to-earnings (PE) ratio has also doubled to 60, so investors should recognize the implication of buying stocks at that valuation level. Nvidia announced new products for gaming and cloud, adding to its prospects. Massive tech investments by Meta Platforms (META -0.18%) and other businesses will also be a major catalyst in the coming years.
Image source: Getty Images.
2. Alphabet
Alphabet (GOOGL -0.50%) marched steadily higher throughout the year to a 60% stock return. The company delivered roughly 45% sales growth over the first nine months of the year, while operating profits increased 120%.
In a year where runaway valuations made headlines for tech stocks, Alphabet delivered stellar returns based primarily on fundamentals rather than inflated valuation ratios. Its trailing PE ratio, forward PE ratio, and enterprise-value-to-EBITDA are all lower than one year ago, though price-to-sales and price-to-book have risen slightly.
Alphabet is a major player in a few different growth markets, but its sales and profits still come overwhelmingly from its advertising business. That concentration adds risk to the story, but it's still oddly cheap for a tech stock with that growth profile.
3. Wells Fargo
Wells Fargo (WFC -2.12%) rode momentum in the financial sector and bank stocks earlier this year, while good news in the second half of the year drove the stock more than 60% higher for the year.
Wells Fargo stock has lagged the Financial Select Sector SPDR (XLF -0.60%) over the past five- and 10-year periods. The phony accounts scandal in 2016 was a big blow for the company. Things got worse in 2018 when regulators placed an asset cap on the bank, limiting its scale until a number of operational and financial health issues were rectified. Wells Fargo is making good progress to improve its operational efficiency and meet the requirements to have its asset cap lifted.
Wells Fargo made progress this year, but it's not out of the woods yet. Its dividend yield is only 1.21% today, so it's hard to consider this stock cheap at this price.
4. Novo Nordisk
Pharmaceutical stock Novo Nordisk (NVO -0.34%) is up more than 55% this year. The company's sales grew 8%, while profits rose 12%. Those are nice results, but the stock's returns were driven primarily by valuation -- Novo Nordisk is more expensive based on multiple ratios. Its 1.37% dividend yield is the lowest since 2016.
It seems like investors are seeking safety in Novo Nordisk. The company leads the global diabetes medication market, and it's gaining a strong foothold in obesity treatment. Novo Nordisk has a highly rated pipeline, and it seems like a safe bet that this company will continue marching forward in the foreseeable future.
5. Home Depot
Home Depot (HD -0.60%) rode a wave of optimism 50% higher in 2021. Sales grew 16% over the first three quarters of the year, driving operating income up nearly 30%. The stock's price rose relative to sales, forward earnings, and cash flow. Its dividend yield also sank around 60 basis points to 1.7%.
Investors are optimistic about consumer strength, DIY popularity, and homebuilding activity. Home Depot has certainly displayed strong operational performance, but it might struggle to keep pace with investor expectations as interest rates rise.
Bonus stay-at-home stocks
This year was also characterized by the unwinding of the stay-at-home trade. Panic early in the pandemic eventually shifted to optimism, as investors threw capital at stocks involved in remote activities including work, healthcare, exercise, and shopping. Many stocks reached completely unsustainable valuations as uncertain conditions accelerated existing trends for remote collaboration.
That trend reversed in 2021 as things normalized and more rational valuations were demanded in the market. The charts of Peloton (PTON -3.95%), Teladoc Health (TDOC -1.89%), RingCentral (RNG -0.55%), and Zoom Video Communications (ZM -0.14%) are shockingly similar.
PTON Total Return Level data by YCharts
Those companies have all experienced their own challenges and successes, but this is a clear case of market forces driving returns. Don't be shocked if this trend continues in 2022, regardless of the companies' earnings results.
