My top 5 holdings for 2022
In less than 48 hours, we will be ringing the New Year. However, Wall Street might be sad to see the page turn. After all, the benchmark S&P 500 has more than doubled its average annual total return by 11% since the start of 1980, until last weekend.
As for me, I look forward to 2022. Despite the S&P 500’s gains, it has been a difficult year for many of my biggest holdings. Nevertheless, I am counting on these five main stocks in the portfolio to continue to enrich me over the long term.
Gold stock SSR mine (NASDAQ: SSRM) has been my biggest participation for a while. Initially, I owned shares in Canadian gold miner Claude Resources, which SSR acquired in a cash and equity transaction in 2016.
To own gold mining stocks, you need to believe two things. First of all, you have to believe that the price of physical gold is going to increase. As the Federal Reserve has dramatically increased money supply over the past decade, inflation hit a 39-year high in the United States in November, and bond yields remain near record lows, the gold looks brighter than ever.
The other belief that is needed if you want to own a gold mining stock is that the business you own can maintain or increase production while maintaining a healthy balance sheet. SSR Mining is arguably the best value in the industry.
In 2020, he completed a peer-to-peer merger with Turkey’s Alacer Gold. Alacer’s entry into the fold nearly doubled SSR’s annual production. Management anticipates that the company will produce 700,000 ounces of gold equivalent (GEO) at 800,000 GEO on an annual basis for at least the next five years.
Additionally, while most mining stocks are still trying to get out of their net debt, SSR has over $ 500 million in net cash, introduced a dividend of $ 0.05 per quarter, and approved a buyback program. shares of $ 150 million.
The bottom line is that gold stocks are, in my opinion, fairly valued at 10 times cash flow. SSR Mining can currently be bought for just over six times the estimated cash flow per Wall Street share in 2022.
Teva Pharmaceutical Industries
My second largest stake at the moment is a brand name and generic drug company Teva Pharmaceutical Industries (NYSE: TEVA). Teva has been an ongoing investment in my portfolio for over four years, but I’ve made a lot of purchases along the way.
I’d be lying to you if I said everything went well with Teva. The company has gone through five very difficult years. He has settled corruption allegations, canceled his dividend, overpaid generic drug company Actavis and faces numerous litigation over his alleged role in the opioid crisis. The latter was the gray cloud that really held Teva back throughout 2021.
But buying turnaround stories has always been the itch I love to scratch – and I see Teva as a turnaround story that will eventually shine.
The most important thing for Teva is to keep CEO Kare Schultz at the helm. Schultz is a turnaround specialist who was hired just over four years ago. Since taking office, he has helped cut spending by the billions, sold non-core assets and reduced the company’s net debt from $ 34 billion to $ 22 billion.
Schultz is also likely to play a key role in helping resolve Teva’s legal issues. With cash at a premium for a company focused on paying down its debt, Schultz may be able to negotiate a large-scale deal to offer free or discounted drugs.
Additionally, Teva won an opioid lawsuit in California in early November, meaning the company’s liability may not be as high as Wall Street feared. With Teva shares going basement three times the earnings over time, I see better days ahead.
First majestic silver
Yes, another mining stock! My third biggest participation is First majestic silver (NYSE: AG), which, as the name clearly indicates, derives most of its income from the production of silver (and to a lesser extent gold). I was a former shareholder of Primero Mining, which was acquired at a generous premium by First Majestic Silver in 2018.
The same premise is true for silver stocks as it is for gold mining companies (i.e. I think the price of silver will increase over time). The growing demand for silver in electric vehicles and solar panels are just a few of the major opportunities on the demand side that are expected to drive silver prices up in the long run.
First Majestic Silver currently has four producing assets, with an equal number of projects under development or on hold until silver prices make them economically viable. The San Dimas mine, which was acquired under the Primero agreement, continues to be a shining star. This year it is expected to have produced between 7.6 million ounces of money equivalent (SEO) and 8.1 million SEOs at an all-inclusive sustaining cost of just over $ 12 per SEO. With cash at nearly $ 23 an ounce, San Dimas is generating substantial margins for the business.
First Majestic also recently acquired the Jerritt Canyon mine in the United States, which increased its gold exposure. The company will likely recognize around 75,000 ounces of gold over seven months of Jerritt Canyon operations in 2021, but could see production increase to 200,000 ounces of gold by 2024.
Although I dumped almost 40% of my stake in First Majestic Silver during its short tightening period at the start of the year, I still expect a big hike.
Bank of America
The oldest stock in my portfolio, and the fourth largest, is Bank of America (NYSE: BAC). My initial purchase was a little over 10 years ago and I built my position through a dividend reinvestment plan.
Without a doubt, the most exciting development for Bank of America is the rapid rise in inflation. While this is not good news for consumers or businesses, higher inflation will prompt the Federal Reserve to act faster and raise lending rates. No bank stock is more interest sensitive than BofA.
According to the company, a 100 basis point parallel shift in the interest rate curve would add about $ 7.2 billion in 12-month net interest income. With dot charts from the Fed suggesting we could see as much as 175 basis points in rate hikes through 2023, Bank of America could be on the verge of a big profit increase.
But I’m not just hanging on to BofA because interest rates are likely to go up. Another reason I own Bank of America is because it is cyclical. While recessions are inevitable, they often only last a few months or quarters. By comparison, periods of economic expansion are measured in years. This gives companies like BofA plenty of time to make loans and accumulate deposits (i.e. bread and butter from the bank).
The company also deserves credit for an effective digital banking shift. Almost 5 million more people digital banking with BofA than three years ago at this time, with 43% of all sales made online or through a mobile app in the third quarter. Digital sales are considerably cheaper for BofA, which has enabled the company to consolidate some of its branches.
The only real newcomer to my top five holdings for the coming year is a dog-focused product and service company. To bark (NYSE: BARK).
While the pet industry isn’t the fastest growing, it has proven to be virtually recession-proof. Data from the American Pet Products Association shows that year-over-year U.S. spending on pets has not declined for at least a quarter of a century. Additionally, pet ownership has reached a new high in the wake of the pandemic. In other words, people treat their furry, scaled, feathered and gilled animals like family and often spend a fortune on their happiness and well-being.
What excites me most about Bark is the operating model and the innovation of the company.
As for the former, Bark generates almost 90% of its revenue from online subscriptions. Despite being present in around 23,000 points of sale, focusing on online subscriptions results in high margins, predictable cash flow and lower overhead costs. Bark produced a gross margin of around 60% on a fairly consistent basis.
There is also innovation in the form of new products and services. In particular, Bark Home is a source for adding basic accessories like collars and beds, while Bark Eats will work with owners to develop a specific dry diet for their dog.
Bark has all the makings of a company that can triple their sales by the middle of the decade and maybe 10x my money by 2030.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.