Stock prices have been all over the place in 2022, making it a rather scary year for investors. The S&P 500, which closed 2021 with 27% gains, is down 22% so far this year, as of this writing. It'll be an absolute stunner if the index can end 2022 in the green.
Yet, December brings hope with it, as U.S. equities have historically rallied in the last month of the year. With the stock markets also regaining some ground last month, December is the perfect time to evaluate your portfolio, plan ahead, and set some money aside to buy stocks that look convincing as we step into a new year.
Some names to consider right now are Nvidia (NVDA 3.65%), Novocure (NVCR 1.90%), Deere & Company (DE -0.60%), and Brookfield Renewable Partners (BEP 2.85%). And if you still aren't convinced, a proven exchange-traded fund (ETF) like the Vanguard 500 Index Fund (VOO 1.26%) is your best bet.
Here's why these are the top stocks for December.
The gold standard in graphics and accelerated computing
Trevor Jennewine (Nvidia): Chipmaker Nvidia recently delivered a dismal third-quarter report. Gaming and professional visualization revenue fell 51% and 65%, respectively, as demand softened in response to high inflation. Meanwhile, growth in data center sales slowed to 31% as COVID-19 lockdowns in China created yet another headwind to demand. Collectively, total revenue dropped 17% to $5.9 billion and adjusted earnings fell 50% to $0.58 per diluted share.
Unfortunately, the near-term outlook is even worse. Management expects fourth-quarter revenue to fall 21% to $6 billion, as weak demand continues to weigh on the gaming, professional visualization, and data center segments. But that gloomy guidance creates an excellent buying opportunity for patient investors. The stock is currently 53% off its high, trading at 13.8 times sales -- a serious bargain compared to the three-year average of 20.3 times sales -- because many shortsighted investors have lost confidence.
Nvidia is struggling with temporary economic challenges, not a material weakness in the underlying business, so the investment thesis remains solid. Its compute platform -- comprising cutting-edge chips, high-performance networking equipment, and a broad spectrum of software -- is the gold standard in graphics and accelerated computing. In fact, Nvidia holds more than 90% market share in workstation graphics and supercomputer accelerators, and it has consistently achieved leading results at the MLPerf trials, an objective benchmark designed to measure the performance of artificial intelligence (AI) hardware and software.
To that end, investors have good reason to believe Nvidia will bounce back. It may not happen in the next few quarters, but the company has a strong foothold in the large and growing gaming and data center markets, and the ongoing evolution of technologies like AI and the metaverse should be a powerful tailwind for Nvidia. In fact, management puts its addressable market at $1 trillion. That's why patient investors should pick up a few shares of this growth stock in December.
The monster opportunity no one's looking at
Neha Chamaria (Brookfield Renewable Partners): 2022 may have been a challenging year for many companies, but what if you come across one that's found more opportunities to grow this year than ever and is setting itself up for big days ahead, and yet its share price has fallen? Brookfield Renewable is one such company that's powered for growth, and if you've been looking to invest in an industry with mega-growth potential, now's the time. The stock has also proven to be a winner for patient investors so far.
Brookfield Renewable is a clean energy giant with nearly $68 billion in assets under management across hydropower, solar, wind, and distributed generation across four continents. It currently has roughly 24 gigawatts (GW) of capacity under operation, but its pipeline has already crossed the 100 GW mark!
That one number alone should give you an idea about the kind of monstrous growth opportunities for Brookfield Renewable. By 2050, trillions of dollars are expected to be invested in clean energy globally as the world strives to decarbonize. Brookfield Renewable is already at an advantage. 2022, in fact, has been a record year of investments for the company as it found ample opportunities, backed by its parent organization, Brookfield Asset Management. Its latest growth moves include an agreement with uranium giant Cameco to acquire Westinghouse Electric, the world's largest provider of nuclear energy equipment and services, and a proposal to acquire some assets from Origin Energy, one of Australia's largest electricity and gas providers.
This growth spending, and the fact that almost 94% of Brookfield Renewable's cash flows are contracted, could easily boost the company's funds from operations (FFO) per share by at least 10% annually through 2027. That also makes Brookfield Renewable's goal to increase its dividend every year by 5% to 9% very doable.
Now, if a company can grow its cash flows by double-digits and dividend per share by high-single-digit percentages every year, there's no reason why its stock price shouldn't rally. Yet, this compelling 4.4%-yielding stock has lost almost 25% value in just the past three months primarily on fears of rising interest rates. You know where to look this December.
The countdown is on for this promising stock
Keith Speights (Novocure): It's important to look at standard valuation metrics with many stocks. However, I think that Novocure is an exception. The company isn't profitable yet, ruling out any earnings-based metrics. You'd probably be bearish about Novocure if you only checked out its sales-based valuation numbers. But there's a more compelling reason to be bullish about this stock: The countdown is on.
For nearly six years, Novocure has been conducting a late-stage clinical study evaluating its tumor-treating fields (TTFields) therapy in treating non-small cell lung cancer (NSCLC). The company plans to report the results from the study in early 2023.
This upcoming announcement is huge for Novocure. The TTFields therapy is currently approved in several countries for treating glioblastoma (an aggressive type of brain cancer) and mesothelioma. Roughly 16,000 patients are diagnosed each year with these indications. But more than 12 times that number are diagnosed each year with NSCLC.
But those NSCLC results aren't the only potential catalysts on the way for Novocure. The company also plans to announce data from a late-stage study of TTFields in treating ovarian cancer next year. Results from two other pivotal studies targeting brain metastases and pancreatic cancer are expected in 2024.
Novocure has taken investors on a roller-coaster ride in 2022 with shares careening up and down repeatedly. If the company reports positive results from its NSCLC study (and I suspect it will), the ride is probably about to become a lot more fun.
Deere stock has it all headed into 2023
Daniel Foelber (Deere): It's rare to find a winner that keeps on winning in a market riddled with stocks that have suffered their worst drawdowns in over a decade. But that's exactly what Deere has given its shareholders -- which have enjoyed a 161% gain over the last three years relative to the S&P 500's 25.5% gain.
A stock going up in a bear market is one thing. What makes Deere special is that it is outperforming the market for all the right reasons. The chart below says it all.
Deere stock is hitting an all-time high not because of speculation that the company will do well in the future, but because the company is firing on all cylinders right now. Revenue, earnings, and free cash flow are all at all-time highs. And the stock price reflects that. Despite the stock's 28.6% year-to-date gain, the numbers have been so good that it is still cheap -- trading at a price-to-earnings (P/E) ratio of just 18.9.
The company reported full-year fiscal 2022 results on Nov. 23 -- booking $7.13 billion in net income despite a slew of supply chain and inflation-related challenges. Earlier in the year, the company guided for full-year earnings of $7 billion to $7.2 billion, so it delivered on its promises. What's more, fiscal 2023 guidance calls for $8 billion to $8.5 billion in net income. At the midpoint, that would represent 16% earnings growth on top of difficult fiscal 2022 comps. It also gives Deere a forward P/E ratio of just 16.1.
Deere is a company that is generating record results in a market where it's hard to find reliable growth. Throw in the fact that it is an industry-leading company, has a reasonable valuation, a small dividend, and is aggressively investing in technology, automation, and artificial intelligence, and you have a balanced company that blends growth and value. The investment thesis for Deere is as compelling as ever, and the stock is worth buying at an all-time high.
This is a great time to buy reliable index funds
Anders Bylund (Vanguard S&P 500 ETF): The stock market was overdue for a correction in 2022. We got exactly that, and now it's time to look forward to predictable long-term gains again.
Think about it. Right before the coronavirus crisis led to a deep but brief market crash in March 2020, the S&P 500 index was up by 23% in 52 weeks. Many investors felt that the market was overvalued at the time. So the virus swept across the world, stock markets crashed everywhere -- and then the market recovery started right away. By September 2020, the S&P 500 was back to the previous highs of seven months earlier, and the chart only climbed from there. The index had gained 47.5% in two years by the start of 2022 -- a compound annual growth rate (CAGR) of 21%.
So the market took a breather, and for good reason. The fallout from the COVID-19 pandemic still haunts the global economy, as it triggered massive issues in international trade, manufacturing and shipping operations, job markets, and the stability of national currencies. The S&P 500 has fallen more than 15% below last December's all-time highs.
If you haven't been investing during this bear market, it's high time to start. And you don't have to get fancy with it. In times like these, you can set up a reliable money-making machine with a high-quality index fund instead of hand-picking specific stocks that seem poised to beat the market.
I recommend an exchange-traded fund (ETF) with ultra-low annual fees and decades of proven performance, such as the Vanguard 500 Index Fund. This fund follows the returns of the S&P 500 index with extreme accuracy. The Vanguard investment group manages $747 billion under this fund, and that heft provides extra stability. Master investor Warren Buffett trusts this fund, and it's absolutely good enough for you and me.
You can also add to this position over time, and you should make sure that the fund's dividends are reinvested automatically. The Vanguard 500 fund has delivered simple annual returns of 10.9% over the last decade, but the CAGR turns up to 13% if you're working with reinvested dividends along the way:
Investing in index funds during market downturns is a baldfaced bet that the market as a whole will recover one of these days. You won't beat the market but you will absolutely make money in the long run by matching it, and you won't lose any sleep over this decision.
