It's easy to forget about an important point when buying stocks. Every stock you buy gives you partial ownership in a real business.
I have to remind myself of this as I think about my portfolio entering a new year. At best, all I can do is guess which stocks will be the biggest winners over the next 12 months. However, I can relatively easily identify the businesses in which I have the most confidence. With that in mind, here are my three highest-conviction stocks for 2022.
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1. Amazon.com
If you haven't read Invent and Wander: The Collected Writings of Jeff Bezos, I highly recommend it. The book provides great insight into how the Amazon.com (AMZN 1.30%) founder thinks. Probably the most important takeaway is that Bezos has embedded a guiding principle into Amazon's corporate culture that it's always "Day One." In other words, the company should continually think like a startup no matter how big it gets.
Even with Bezos stepping back from his role as CEO, Amazon is likely to keep this "Day One" mentality. Look for the company to dip its toes into new markets and take the kinds of calculated risks that could pay off in huge ways over time.
The great thing, though, is that Amazon still has plenty of room to grow with its current businesses. For example, e-commerce only accounted for 13% of total retail sales in the third quarter of 2021. That remaining 87% presents an enormous opportunity for Amazon.
But Amazon is also a top cloud stock with its Amazon Web Services (AWS) unit. Actually, AWS is much more profitable for the company than e-commerce is. It's also growing much faster.
Wall Street thinks that Amazon's share price could jump more than 25% over the next 12 months. I don't know if that will happen, but it wouldn't surprise me at all. More importantly, I have no doubt that Amazon's business will progress in ways that will reward shareholders like me over the long run.
2. Intuitive Surgical
My Motley Fool colleague Bradley Guichard recently wrote that Intuitive Surgical (ISRG 2.21%) has the robotic surgery market "cornered." Maybe the company doesn't meet the technical definition of cornering the market (being able to manipulate prices), but there's no question that Intuitive dominates robotic surgery with a market share of around 80%.
Some formidable competitors would love to end Intuitive's dominance, including Medtronic and Johnson & Johnson. I don't see that happening, though. Intuitive's extensive track record and large install base (that has a significant financial motive to maximize their investments) give the company a strong moat.
Probably the biggest threat to Intuitive Surgical is that rising COVID-19 cases cause hospitals to push back non-urgent surgical procedures. But even if this occurs, it will only be a temporary issue for the company.
Intuitive stands to benefit from aging demographic trends that should fuel increasing demand for the types of procedures for which robotic assistance is ideally suited. The company should also expand the procedures where its systems can be used through technological innovation. My view is that the stock is a no-brainer to buy and hold for the long term.
3. PayPal
Sure, PayPal (PYPL 1.96%) stock has been hammered in recent months. And yes, its shares might still seem pricey trading at 35 times expected earnings. However, I'm more optimistic about PayPal than ever.
I like the prospects for Venmo in 2022. Amazon just began supporting the digital wallet for online purchases on its e-commerce platform. Other top websites, including Booking.com (BKNG 2.05%) and Fanatics added support for Venmo over the past several months.
PayPal's buy now, pay later (BNPL) initiative is already a big success story. The company plans to expand to new geographic markets and introduce support for longer-term installment plans this year. My view is that BNPL is a great growth opportunity for PayPal.
Analysts project that the stock could skyrocket more than 40% over the next 12 months. Maybe it will and maybe it won't. However, I have no doubt that the transition away from cash to digital payments will increase throughout this decade. I also have no doubt that PayPal will be a big winner from this trend.
