Please ensure Javascript is enabled for purposes of website accessibility

1 Growth Stock, 1 Value Stock, and 1 Cryptocurrency to Buy for 2022

By Daniel Foelber - Jan 20, 2022 at 8:45AM

Key Points

  • Adobe is a powerhouse software company that has evolved into a cash cow.
  • Starbucks has an attractive dividend and a thriving business.
  • Ethereum is a simple and effective way to invest in crypto.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This basket can outlast a stock market sell-off.

We're just two trading weeks into the new year and already we've seen intense U.S. stock market and crypto market volatility. At the time of this writing, the Nasdaq Composite is already down over 5% so far this year. 

Investors trying to get their bearings after the stock market doubled over the last three years have come to the right place. Instead of diving all into one category, a basket of stocks including Adobe (ADBE 4.80%), Starbucks (SBUX 2.98%), and Ethereum (ETH 0.12%) offers a balance of growth, value, and income. Here's why this group has long-term potential.

A person in a blue dress shirt points to a digital rendering of several upward-sloping arrows. The word "2022" sits on top of the tip of the arrow the person is pointing at.

Image source: Getty Images.

Adobe: A wide moat

The best growth stocks aren't the fastest growers, but, rather, are the companies that have industry-leading positions in exciting marketplaces, offer strong profit, and generate consistent positive free cash flow. If the last few years have taught us anything, it's that the market favors this balanced level of growth at a reasonable price over growth at all costs. And few companies do it better than Adobe.

Year after year, Adobe stock produces excellent returns not because it posts rapid revenue growth, but because it pairs moderate revenue growth with increasing profitability. Adobe is a linchpin in the creative software industry and was a pioneer in transitioning toward software as a service. Today, its creative cloud, document cloud, and experience cloud segments generate stable growth and profits even during difficult economic times simply because Adobe is truly a staple of the digital age.

A few decades ago, discussions of recession resilience were usually reserved for consumer staple companies like Procter & Gamble that make products people need no matter how the economy is doing. Today, one could argue that companies like Adobe are digital staples, or enterprise staples because their solutions are needed to conduct business. Given its massive moat, improved profitability, and the fact that it's down 26% from its 52-week high, Adobe stands out as a solid all-around growth stock to buy in 2022 and hold forever.

Starbucks: A modern-day value stock

Starbucks has transitioned from a growth stock to a value and dividend stock that could be a foundational holding in virtually any portfolio. The traditional framework of value investing developed by Benjamin Graham and adopted and modernized by investors like Warren Buffett, Mohnish Pabrai, and Guy Spier involves stripping down a company's book value, earnings, and other metrics to see if its stock is trading at a discount relative to this intrinsic value. Typically, these companies were unknown names in cyclical or unattractive industries. But today, high-frequency trading, sophisticated modeling, and access to data have reduced the effectiveness for a retail investor to use this old style of arbitrage value investing.

Investors could argue that today's value stocks are companies with fair price-to-earnings, price-to-free-cash-flow, and price-to-sales ratios that are also incredibly dominant brands capable of outlasting economic cycles and growing for decades to come. Starbucks fits this model of the modern-day value stock. After coming off of a terrible fiscal year in 2020, which was impacted by the COVID-19 pandemic, Starbucks notched record-high revenue in its fiscal year 2021 while growing earnings and free cash flow. 

ADBE Revenue (Annual) Chart

ADBE Revenue (Annual) data by YCharts

In order to continue the momentum, the company could use the following ways as some potential options to sustain organic growth:

  • Open more stores in the U.S., China, and other developed and developing markets.
  • Expand the drink menu and tap into higher-margin drinks and food items.
  • Increase the dollar number per transaction.
  • Facilitate repeat business through an easy-to-use application that would allow for mobile orders and payments.
  • Adding more drive-thru stores at smaller footprints than in-store coffee house style locations.

Throw in a 2% dividend yield, and there's a lot to like about Starbucks stock, especially now that it's trading around 25% off its 52-week high. 

Ethereum: A simple way to approach crypto investing

With so much happening in the crypto space, it's easy to get sidetracked chasing outsized returns. Filter out all the noise, and it's plain to see that as long as crypto grows, Ethereum should grow along with it.

Ethereum has a role in so much of the crypto market. It's the Layer 1 blockchain upon which Layer 2 projects like Polygon and Chainlink operate. Its also interconnected with development apps (dApps). To grow, Ethereum doesn't need speculative investors to simply bid up its price. It just needs the value of the network it supports to grow and it should grow along with it.

The interconnected blockchain, illustrated by several computers, chips, and circuit boards with bright beams of red, pink, purple, and blue light piercing through the network.

Image source: Getty Images.

While Ethereum is unlikely to be the best-performing crypto, it stands out as the best all-around bet. The most someone can lose is 100%, but it's not unreasonable to imagine Ethereum increasing by tenfold from its current price. If we sit back and think about the potential of crypto, similar to the potential of smartphones 10 years ago, it's possible for Ethereum to be worth, say, as much as Apple over the next five to 10 years. At just shy of a $400 billion market cap, Ethereum growing to around Apple's $2.8 trillion market cap would be a sevenfold return. 

Despite its potential, Ethereum isn't without its risks. The unknown outcome of the Ethereum 2.0 upgrade, the threat of other blockchains taking market share from Ethereum, or simply a disruption in the crypto industry as a whole could all impact the investment thesis for Etheruem. Given how risky crypto is, most investors are probably better off simply dollar-cost averaging into Ethereum over time instead of chasing the supposedly next biggest altcoin.

A diversified basket worth considering

Adobe, Starbucks, and Ethereum each have their own powerful investment thesis -- but they're even stronger when grouped together. The through-line is that each option is an industry leader, which gives the basket a better chance of powering through a market sell-off. The good ones tend to make it through.

As tempting as it can be to try and snatch up heavily discounted growth stocks on dips, the better risk-reward option for most investors is simply to invest in companies that investors can confidently say will be around 20-plus years from now. Adobe, Starbucks, and Ethereum all seem to fit that mold. And for that reason, they all look to be fantastic buys now.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Adobe Inc. Stock Quote
Adobe Inc.
ADBE
$428.22 (4.80%) $19.62
Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$76.71 (2.98%) $2.22
Apple Inc. Stock Quote
Apple Inc.
AAPL
$149.64 (4.08%) $5.86
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
PG
$148.72 (1.53%) $2.24
Ethereum Stock Quote
Ethereum
ETH
$1,769.06 (0.12%) $2.05
Chainlink Stock Quote
Chainlink
LINK
$6.41 (-0.68%) $0.04
Polygon Stock Quote
Polygon
MATIC
$0.58 (-0.01%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
344%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.