For most investors in global stocks, 2022 has been one of the worst starts to a year in living memory. That’s because major benchmark indices in the US have seen violent sell-offs.
The cause of this has been straightforward and can be summed up in two words; interest rates. Or, more specifically, the fact that the US Federal Reserve is set to hike interest rates in quick succession this year to fend off high inflation.
As a result, despite a strong late-month rebound, the S&P 500 Index shed 5.3% in January.
Meanwhile, the tech-heavy Nasdaq-100 Index suffered even more (given its tilt towards “growth” stocks) as it fell into correction territory before paring losses to end the month down 9.0%.
With lots of commentators talking about buying into “quality” stocks and looking for companies with pricing power, it’s more important than ever to understand what you’re buying and why you’re buying it.
Yet we shouldn’t also shun high-growth tech stocks just because they’re down. In fact, some of them could provide great buying opportunities for long-term investors at current prices.
With that, here are five stocks that long-term investors can consider buying in February.
1. Tesla
Yes, we all know that Tesla Inc (NASDAQ: TSLA) stock is cited as many market watchers as a perfect example of “irrational exuberance”.
But behind all the hype and headlines, Tesla actually has an incredibly fast-growing and, crucially, increasingly profitable business.
While its shares are down over 20% so far in 2022, it’s only up around 7% over the past 12 months. Tesla’s latest earnings highlighted how ridiculously strong its business has become.
In the fourth quarter of 2021, Tesla saw its revenues soar 65% year-on-year to US$17.7 billion.
More importantly, though, its earnings skyrocketed with GAAP net income attributable to shareholders up a whopping 760% year-on-year to US$2.3 billion.
For the whole of 2021, Tesla delivered a record 940,000 vehicles while its annualised vehicle production run-rate in the fourth quarter rose to 1.22 million.
Investors may have been disappointed that there was no news on new Tesla models this year but the growth for this giant, from battery storage to full self-driving (FSD) software, remains immense.
2. Bank of America
Traditional banks in the US are enjoying a resurgence. One of the key winners of this rally has been Bank of America Corp (NYSE: BAC), one of the biggest banks in the country.
Primarily, Bank of America – also known as BofA – has benefitted from a rising tide that’s lifted all (bank) boats; namely expectations of higher interest rates.
The interest rate hikes this year will help banks with higher net interest income (NII) and widening net interest margins (NIMs). Yet, Bank of America has had an incredible turnaround since the Global Financial Crisis in 2008.
The bank’s focus on digital (see below) for its large retail, as well as wealth management, customer base has differentiated it from its incumbent peers.
Source: Bank of America Q4 2021 earnings presentation
BofA’s latest fourth-quarter earnings illustrate its strengths. The full-year 2021 was a record year with net income hitting US$32 billion on revenue of US$89.1 billion, while the bank’s Return on Equity (ROE) was a solid 12.2%.
In the middle of 2021, BofA raised its dividend by 17.5% and, with a bright outlook, this bank is set to keep on winning from the rotation into bank stocks.
3. Danaher
A sector that provides both growth and defensive qualities is healthcare – purely because there will always be demand for spending on our health.
One rock-solid company that operates in this space is Danaher Corporation (NYSE: DHR), a diversified healthcare conglomerate.
The company, which has a US$200 billion+ market cap, is a veritable giant in the fields of life sciences and diagnostics.
Danaher’s latest quarterly earnings illustrated what a solid business it has providing medical equipment and testing kit to all sorts of clients.
Revenue in the fourth quarter of 2021 was up 20.5% year-on-year to US$8.1 billion while its operating profit margin increased by 270 basis points to 26.4%.
With free cash flow up an impressive 30.5% in the whole of 2021 to US$7.0 billion, Danaher looks like a solid investment in the future of healthcare demand.
4. Vanguard Real Estate ETF
We should always consider Exchange-Traded Funds (ETFs) as investors, given their ability to provide broad diversification at low cost.
One such sector, which could retain pricing power, is real estate. However, a lot of international investors are apprehensive to enter real estate investment trust (REIT) investments in the US – perhaps because they’re not familiar with it.
Thankfully, there’s a solid ETF that helps investors tap into one of the world’s largest real estate markets; the Vanguard Real Estate ETF (NYSE: VNQ).
Among its top holdings are American Tower Corp (NYSE: AMT), a mobile/wireless towers REIT, Prologis Inc (NYSE: PLD), the world’s largest logistics REIT, and Equinix Inc (NASDAQ: EQIX), one of the world’s biggest data centre REITs.
With a super low expense ratio of 0.12%, along with an annualised return of 9.9% over the past decade, the Vanguard Real Estate ETF provides a great starting point for the US property market.
5. Sea Ltd
Finally, we have the e-commerce giant that operates in Singapore’s own backyard of Southeast Asia; Sea Ltd (NYSE: SE).
Sea’s shares have taken a hit amid the growth tech sell-off, with its shares down nearly 30% so far in 2022.
That primarily reflects concerns over the rise in interest rates given Sea’s glaring unprofitability – in the third quarter of 2021 it posted a net loss of US$571 million.
Yet those losses are being absorbed as it launches Shopee in new markets that will be heavily loss-making (such as India) but while its e-commerce arm simultaneously moves towards profitability in key markets in Southeast Asia.
In fact, its Malaysia and Taiwan Shopee businesses are already profitable; proof that its strategy is working.
With over US$11 billion on its balance sheet in cash, Sea is a company that can absorb these losses as it continues to scale in multiple markets.
Keep investing, no matter what
It’s never nice to see red in our portfolios but it’s also a timely reminder that markets can’t go up in an uninterrupted straight line.
Corrections are normal, even healthy, behaviour when we invest and we should welcome these as they provide us with opportunities to buy our favourite businesses at heavily-discounted prices.
With Tesla, Bank of America, Danaher, Vanguard Real Estate ETF and Sea, investors have five ideas that could provide great – but more importantly, diversified – long-term returns.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares in Sea Ltd.
