High inflation and tighter monetary policy by global central banks are the biggest risks for stock markets in 2022. The ongoing pandemic, the slowing Chinese economy, and geopolitical risks are also a threat. It is difficult to predict how the stock market will behave when faced with these risks. Nevertheless, there are companies that, in our opinion, will be able to survive any fall on Wall Street, and that is what we are going to talk about today.
Pioneer Natural Resources
Pioneer Natural Resources (PXD) stock has seen triple-digit gains over the past two years. Now, the stock is poised to return to its 2018 highs, which are around $200-$212. The strengthening of positive sentiment in the market was due to rising commodity prices, especially gas prices.
Earnings per share are projected to exceed $12 in 2022, more than seven times the 2020 level. PXD is a leading low-cost player in the oil and gas industry, making it a valuable acquisition for any investment portfolio. Oil and gas prices are projected to continue to rise in 2022. It means that over the next 12 months, the company’s profits will take another leap. It is projected to grow by at least 50%.
In addition to a favorable fundamental environment, the company has another driver for growth. The shale company acquired Parsley Energy for $7.6 billion, which will ensure its broader presence in new fields and create new revenue streams. Parsley Energy Natural Resources borrowed $3.5 billion to buy it. There’s nothing scary about that, as the company has a strong enough balance sheet to handle the additional debt load.
Pioneer Natural Resources has a low breakeven, the best balance sheet in the industry, plus the issuer has an excellent differentiated business model, making it an excellent target for investors interested in investing in the energy sector. An eight times P/E ratio and rising dividends also attract cash flow.
Teladoc Health (TDOC) specializes in telemedicine and virtual health care. The company fit perfectly into the economy during the pandemic’s peak as lockdowns forced people to use its services more often. As a result, the company’s revenue growth accelerated from about 20% to triple digits.
Over the past 12 months, the company’s stock has fallen by more than 50%. Nevertheless, Wall Street analysts believe the paper has a future, and the leader in virtual health care could show significant growth in 2022. This stock is projected to grow by more than 60% over the next 12 months. What led to the fall despite such great potential?
The decline began in parallel with the beginning of vaccination, as the fear of the coronavirus began to recede and the world began to return to its former way of life. Under such conditions, the paper couldn’t help but fall in value.
In our view, the company’s decisions may be the key to its post-pandemic prosperity. Moreover, COVID-19, as we can see, has no thought of going away. The recent Omicron strain may once again cause an increase in the number of calls to the issuer’s services, although the world is unlikely to return to strict restrictions, as it did in 2020.
As for the post-pandemic world, we are likely to see the further incorporation of virtual medicine into our everyday lives. It could stimulate the development of this business shortly and accelerate the introduction of virtual health systems.
Other growth factors include the beginning of a partnership between Teladoc Health and HCSC, which is the fifth-largest insurance company in the United States. Thus, the long-term prospects of the issuer should improve in the coming months.
Next, we will look at companies in the Russian stock market, namely those issuers that are connected with the oil and gas sector.
Oil and gas investments in Russia
Oil and gas quotes remain high. It allows commodity producers to be as attractive as possible to investors in terms of dividend yields. The average value of the annual quotes in the model for 2022 is $ 70 per barrel, which will provide a two-digit dividend yield.
In the middle of the last month of 2021, gas quotes in Europe are breaking all records, having reached values exceeding $1500 thousand cubic meters. At the same time, the storage capacity is only 62% full, although, during the last ten years, this indicator averaged 80%.
In this situation, the dividends on Gazprom (GAZP) securities can be very attractive for investors – 47-50 RUB. Then we should expect some decline in yields to 30-33 RUB when gas quotes will start to fall to a reasonable level of about $250 thousand cubic meters.
Lukoil (LKOH) boasts a transparent dividend policy: it sends 100% of its adjusted cash flow to dividends, making its shares very attractive to investors. Despite the negative impact caused by changes in working capital, during the three quarters of 2021, the dividend yield relative to current prices was 10%.
The company also returned to buyback practices, which is very rational, given the low valuation of the shares. If the change in working capital next year has no impact, we can expect dividends of about 900 RUB per share.
Rosneft (ROSN) is supported by the field development project in the north of the Krasnoyarsk region, which is a strong and long-term growth driver for the company. If the company sells parts of the project to outside investors, attracting funds to the company itself, it will contribute to the growth of its capitalization.
Even though Gazpromneft (SIBN) shares are currently below those of other companies in the sector, the business shows very impressive results compared with other similar companies. Investors are little interested in Gazpromneft shares because of the low Free Float, but it may well be among the leaders, given the near-term prospect of an SPO.
The main risk for the sector is the dependence of oil prices on the OPEC+ agreement, which is based on the reduction of oil production volumes. If Iran returns to the market, the supply/demand balance could be upset. It will likely lead to a decline in oil prices in the next few years, with all the consequences that this entails.
Last week’s quarterly reports
Nike’s net income rose 7% to $1.337 billion in Q2. Diluted earnings per share rose to $0.83 from $0.78 a year earlier. According to the forecast, the figure should not have exceeded $0.63. The shoe maker’s revenues rose 1 percent to $11.357 billion. The company had expected revenues of $11.25 billion.
Performance improved due to growth in online sales, which offset lower revenue from the wholesale business.
After the report, the paper began to grow rapidly. It rose to $171 but finished the week lower, falling back to $165. We believe that the stock is now in the initial phase of a new upward impulse. We expect its growth towards $180, and further to $200 area.