Amid the rising inflations, the Federal Reserve of the United States has taken several initiatives. The central bank has announced plans to accelerate the reduction in its monthly bond purchases and raise interest rate three times in 2022, two times in 2023, and two more times in 2024. With these measures, borrowing costs could rise, thus widening net losses of high-growth stocks, which are burning cash to fund their growth initiatives.
So, I expect value stocks to outperform growth stocks next year. If you want to invest in value stocks, my three top picks are here.
The rising hope that Omicron would not be as intense as earlier estimated and lower inventories have led oil prices to bounce back strongly and trade over US$70 per barrel. Meanwhile, analysts are projecting oil prices to rise further and hit US$100 per barrel next year. Higher oil prices could benefit oil-producing companies, including Suncor Energy (TSX:SU)(NYSE:SU).
The company, which has witnessed strong buying this year, could also continue its upward momentum in 2022. The company’s management has planned to increase its production by 5% next year while raising its downstream business to pre-pandemic levels amid rising consumer demand. Its debt-reduction initiatives and share-repurchase program could also drive its financial growth in the coming quarters.
Meanwhile, Suncor Energy also trades at an attractive forward price-to-earnings multiple of 7.2. So, given the favourable business environment, growth initiatives, and cheaper valuation, I expect Suncor Energy to deliver superior returns next year. The company also pays a quarterly dividend with its forward yield standing at a juicy 5.36%.
Amid the recent pullback due to the weakness in the broader equity market, goeasy (TSX:GSY) has lost over 18% of its stock value from its September highs. The selloff has also dragged its valuation down to attractive levels, with its forward price-to-earnings multiple standing at 15.6. The improvement in economic activities has increased loan originations, expanding the company’s loan portfolio to $2 billion.
Amid the rising demand for its services, goeasy is strengthening its digital channels, venturing into new markets, increasing its penetration, and adding new business segments to enhance its market share. The company’s management hopes to increase its loan portfolio to $3 billion by the end of 2023. So, these initiatives could boost the company’s financials and drive its stock price in the coming years. Meanwhile, the company has also raised its dividends for the last seven years at a CAGR of 34%. So, goeasy would be an excellent buy right now.
Algonquin Power & Utilities
Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) has underperformed the broader equity markets this year, with the company losing close to 10% of its stock value. The correction has dragged its forward price-to-earnings multiple down to 18.6, providing an excellent buying opportunity. The company operates low-risk utility and regulated renewable power-generating assets, generating stable cash flows.
Additionally, Algonquin Power & Utilities has announced a new US$12.4 billion capital plan, which the company expects to invest in over the next five years. Of these investments, 70% will be on the utility assets and 30% on the renewable business. It is also working on closing Kentucky Power Company and Kentucky Transmission Company acquisitions. These investments and acquisitions could grow its rate base at a CAGR of 14.6% and boost its financials in the coming years. Meanwhile, the company also pays a quarterly dividend, with its forward yield at 4.77%.