The first quarter of 2022 was a volatile period for stocks. While there were areas of the market that performed well, such as energy, many major stock market indices including the S&P 500, the Nasdaq 100, and the Euro Stoxx 50 ended the quarter down. Uncertainty over inflation and interest rates, the Russia-Ukraine conflict, and high oil prices were the main drivers of the market weakness.

Lower valuations are creating opportunities

Given the high level of economic uncertainty the world is facing right now, we could see further stock market volatility in the second quarter of 2022. However, as always, there are likely to be plenty of opportunities for astute investors. The good news is that many companies are continuing to see strong growth as the world recovers from the Covid-19 pandemic. Meanwhile, valuations have come down across the board, meaning that a lot of stocks are now priced attractively. 

5 top stocks to consider for Q2 2022

In this guide, we are going to highlight five stocks for investors to consider for Q2 2022. The five stocks are:

All of these stocks have pulled back recently, yet have catalysts that could potentially drive their share prices higher in the future.

JPMorgan Chase & Co (JPM)

 

Past performance is not an indication of future results.

  • JPMorgan is an American financial services company that offers a broad range of services including consumer banking, commercial banking, investment banking, and asset management. It is the largest US bank by assets. 
  • JPMorgan looks well placed to benefit from rising interest rates in the US. Higher interest rates are generally good for banks because they enable them to generate higher net interest income (NII) – the difference between interest earned on assets and interest paid to customers. In March, the US Federal Reserve announced a 0.25% rate hike, and signalled that it is likely to continue raising rates throughout 2022. 
  • In JPMorgan’s Q4 2021 earnings report, the bank advised that NII, excluding its Markets division, is likely to total roughly $50 billion this year on the back of rising interest rates and ‘high single-digit’ loan growth. That would represent an increase of $5.5 billion on 2021. 
  • JPMorgan has previously talked about the need to invest in financial technology (FinTech) and in 2022, the bank has made a number of moves in this space. For example, in January, it announced that it had agreed to acquire a 49% stake in Greek payments firm Viva Wallet. More recently, in March, it announced that it had agreed to acquire Irish FinTech firm Global Shares, a leading provider of share plan management software. These kinds of acquisitions could boost growth in the long run. 
  • As well as investing in FinTech, JPMorgan has also recently made moves in the metaverse. In February, it became the first bank to enter the metaverse, opening a lounge in the popular blockchain-based world Decentraland1.  
  • JPMorgan currently has an undemanding valuation and the stock also looks attractive from a dividend investing point of view. At present, Wall Street analysts expect the bank to pay out dividends of around $4.17 per share for 2022, according to Refinitiv. That equates to a dividend yield of around 3% at the current stock price. 
  • Next earnings release: Q1 results, 13 April 2022. 
  • 5-year share price return: +55% (as of 25 March 2022)

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Netflix (NFLX)

NFLX

 

Past performance is not an indication of future results.

  • Netflix is a leading provider of video streaming services. The company, which currently has around 220 million paid customers across 190 countries, is known for hit shows such as Squid Game, Stranger Things, and Narcos.  
  • Netflix stock plummeted earlier in the year after the company posted its earnings for Q4 2021. Investors were unimpressed with lower-than-projected subscriber additions for the last quarter of 2021, and a weaker-than-expected forecast for the first quarter of 2022.
  • However, the results showed that the streaming company is still growing at a healthy rate. For 2021, revenue amounted to $29.7 billion, up 19% year on year. Meanwhile, the results also showed a jump in profitability. For the year, net income came in at $5.1 billion versus $2.7 billion the year before. 
  • While Netflix has limited growth prospects in the US and Canada, there is plenty of potential for international growth in the years ahead. One region in particular that could drive growth is India, which is projected to have 900 million internet users by 20252
  • After the recent share price fall, Netflix has a low valuation by its standards. At present, the stock’s forward-looking price-to-earnings (P/E) ratio is in the low 30s.  
  • This lower valuation is attracting value hunters. For example, in February, it came to light that hedge fund manager Bill Ackman had spent roughly $1.1 billion on Netflix stock. Ackman said after his purchase that he saw a “compelling risk/reward” at current prices. Additionally, Netflix Co-CEO Reed Hastings spent around $20 million on stock in late January. 
  • Next earnings release: Q1 results, 19 April 2022. 
  • 5-year share price return: +150% (as of 25 March 2022)

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Block (SQ)

 

Past performance is not an indication of future results.

  • Block, which was formerly known as ‘Square’, is a leading FinTech company. Its products and services include payments platform Square, mobile payments app Cash App, and crypto platform Spiral.  
  • While Block stock has been dragged down in the recent tech sell-off, the company continues to generate strong growth. In the fourth quarter of 2021, for example, total net revenue amounted to $4.1 billion, up 29% year over year. Excluding Bitcoin revenue, total net revenue was $2.1 billion, up 51% year over year. Gross profit for Q4 came in at $1.2 billion, up 47% year over year.
  • In late January, Block completed the acquisition of Australian ‘buy now pay later’ (BNPL) firm Afterpay. The company believes this acquisition will strengthen its ecosystem, and enable it to deliver compelling financial products and services for both consumers and merchants. For example, in the future, Square sellers will be able to offer BNPL at checkout, while Cash App customers will be able to discover BNPL offers directly within the app.
  • Looking ahead, Block plans to grow by expanding internationally. In January, the group strengthened its international presence by launching in Spain – its fourth European country. Spain has the fastest-growing e-commerce sector in the EU, as well as a flourishing small business environment, meaning it’s well suited to Block’s ecosystem. 
  • At present, Block stock trades at around 4.2 times 2022 projected sales. By contrast, rival PayPal trades at around 4.7 times estimated 2022 sales. However, compared to PayPal, Block has higher revenue growth and stronger business diversification. This suggests the stock could have outperformance potential. 
  • Next earnings release: Q1 results, 5 May 2022. 
  • 5-year share price return: +591% (as of 25 March 2022)

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Rolls-Royce (RR.L)

RR.L

Past performance is not an indication of future results.

  • Rolls-Royce is a British industrial technology company. The group operates in three main areas: civil aerospace, defence, and power systems. 
  • Rolls-Royce had a tough time during the Covid-19 pandemic. That’s because it generates a large proportion of its revenues from the manufacturing and servicing of commercial jet engines. With planes grounded due to travel bans, the company saw its revenues and profits slump. 
  • However, the group’s 2021 results showed that it’s making a recovery. For 2021, underlying operating profit amounted to £414 million, compared to an operating loss of £2,008 million in 2020. Performance was helped by a recent restructuring programme, which has resulted in higher productivity and lower costs. 
  • Looking ahead, Rolls-Royce is well placed to benefit from the pickup in air travel. At present, analysts expect revenue for 2022 to rise by around 10% year on year to £12.4 billion. 
  • Rolls-Royce has two early-stage, renewable energy-related businesses with high growth potential – Rolls-Royce Electrical and Rolls-Royce SMR. The former is focused on electric drive systems that allow aircraft to be powered by alternative fuels or electricity, while the latter is focused on clean energy solutions that use proven nuclear technology to generate electricity. 
  • The company believes that Rolls-Royce Electrical and Rolls-Royce SMR could together generate more than £5 billion in annual revenue by the early 2030s.
  • Recently, there has been speculation that Rolls-Royce could be acquired by a larger firm. If a deal is announced, its share price could rise. 
  • Next trading update: AGM statement, 12 May 2022. 
  • 5-year share price return: -56% (as of 25 March 2022)

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Greggs (GRG.L)

 

Past performance is not an indication of future results.

  • Greggs is a UK-based food-on-the-go retailer. The company, which sells sandwiches, bakery goods, and drinks, currently has over 2,100 stores across Britain. 
  • Greggs’ recent results, for the 52 weeks to 1 January 2022, showed that the group has emerged from the Covid-19 pandemic stronger as a business. 
  • For the 52-week period, sales amounted to £1,230 million, up 52% year on year, and up 5.3% on the year ended 31 January 2020. Meanwhile, profit before tax came in at £145.6 million, compared to a loss of £13.7 million a year earlier and a profit of £108.3 million two years earlier. 
  • As a result of this performance, the group declared a special dividend of 40.0p per share, on top of its final dividend of 42.0p per share. This extra payout suggests that management is very confident about the future. 
  • At its Capital Markets Day in October 2021, Greggs outlined ambitious targets to double its turnover within five years. 
  • To achieve this turnover target, it is targeting 150 annual net new shop openings from 2022 onwards. It also plans to extend evening trading to 500 shops in the year ahead, expand online and delivery options, and broaden its food and drink ranges. 
  • While Greggs is likely to face cost pressures in the near term, management is confident in relation to the long-term growth story. “We continue to believe that the opportunities for Greggs have never been more exciting. Our investment over recent years has left the business well-placed to move quickly as the economy recovers and we drive our ambitious plans to become a larger, multi-channel business,” said CEO Roger Whiteside in the group’s 2021 results. 
  • Next trading update: AGM statement, 17 May 2022. 
  • 5-year share price return: +132% (as of 25 March 2022)

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1https://fintechmagazine.com/banking/jp-morgan-becomes-the-first-bank-to-launch-in-the-metaverse

2https://www.livemint.com/news/india/india-to-have-900-million-internet-users-by-2025-report-11622706877323.html

 

Charts sourced from eToro platform 29/03/2022.


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