Best Cheap Stocks to Buy Now for a 2022 Rebound
Brokerages see single-digit returns from the S&P 500 in 2022. Here are the five cheap stocks that you can buy now and expect a rebound.
Dec. 27 2021, Published 9:43 a.m. ET
U.S. stocks have been strong in 2022 and we seem to be headed for a third consecutive year of double-digit returns. Some investors crave cheap stocks that can deliver good returns over the long term. Here are the five cheap stocks that you can buy now and expect a rebound in 2022.
The stock markets have been polarized in 2021 and there's a big gap between the top and bottom performing stocks. Also, the 2022 forecast for the markets isn't very optimistic with consensus estimates calling for a low single-digit return.
Brokerages are divergent on the market outlook for 2022.
Brokerages have a mixed opinion on the market outlook for 2022. BMO is in the bullish camp and expects the S&P 500 to rise around 12 percent and close at 5,300 in 2022. Goldman Sachs and JPMorgan also expect the index to hit 5,000 next year.
Morgan Stanley is in the bearish camp though and expects the S&P 500 to fall to 4,400 in 2022, which would mean a fall of 6.9 percent from these levels. All said, the consensus is that market multiples, which are running above their historical average, don’t have room to extend further as the Fed embarks on its rate hikes.
What are cheap stocks?
The definition of cheap stocks can be somewhat debatable. While some investors see low-priced stocks as cheap, in reality, cheapness is a function of valuation and not price. For simplicity, stock splits are a perfect example. While the stock becomes “cheap” in absolute dollar terms after a split, its valuations don’t change.
What are the best cheap stocks for 2022?
If you're looking to buy cheap stocks now, here are the top three names you can consider.
- NIO
- Meta Platforms
- General Motors
All of these stocks are down sharply from their peaks even though the broader markets are near their all-time highs.
NIO looks like a cheap EV stock for 2022.
For NIO, 2021 turned out to be the mirror opposite of 2020 where it gained over 1,100 percent and outperformed other EV stocks. In 2021, NIO is among the worst-performing EV stocks. However, the company has announced two new sedans whose deliveries would commence in 2022.
The expansion into international markets will also drive NIO’s revenues. NIO stock looks cheap on a relative basis and its NTM (next-12 month) EV-to-sales multiple of 5.7x is a steep discount to that of Tesla. NIO’s valuation multiples are even below fellow Chinese EV maker Xpeng Motors. While NIO stock has underperformed in 2021, it's among the best cheap EV stocks to buy for 2022.
NIO stock looks undervalued
The metaverse could take Meta Platforms stock even higher.
Facebook recently changed its name to Meta Platforms to reflect its focus on the metaverse. The stock has come off its highs amid regulatory concerns. It's the cheapest FAANG stock with an NTM PE multiple of 24.6x. While FAANG peers have seen an expansion in their valuation multiples amid the digital transformation, Meta Platforms trades at a discount to its long-term multiples.
Metaverse will only enhance the company's growth prospects. At the current prices, Meta Platforms is among the best cheap stocks to buy now.
General Motors looks like an undervalued auto stock for 2022.
Legacy automakers have seen a rerating in 2021. General Motors stock also rose to the highest price level since it emerged out of bankruptcy. The stock has since come off the highs and is underperforming Ford by a wide margin in 2021. General Motors’ market cap is now similar to that of Ford.
General Motors stock trades at an NTM PE of 8.9x, which looks quite cheap. As the company’s EV plans unfold, it could see a significant rerating over the next few years.