There’s no denying that the stock market performed well throughout 2021. The SPDR S&P 500 is up more than 20%, and the Nasdaq is nearing 50% gains for the year. Meanwhile, the Dow has managed 16% gains despite a recent pullback.
But not all stocks have moved higher. Some have dropped from their all-time highs – down more than 60% year to date. That doesn’t mean that you should ignore them.
In fact, it’s a prime opportunity to own shares of potential growth stocks at a discount. Whether the stocks took a hit during 2021 or recently switched up and reinvigorated their business model, these are three stocks you should buy in 2022 if you want your portfolio to really pop throughout the new year.
So, without further ado, let’s get to it…
Stock to Buy in 2022, No. 3: Airbnb
Airbnb Inc. (NASDAQ: ABNB) has been on a bit of a roller coaster since its IPO in December 2020.
Back then, everyone saw Airbnb as the “reopening stock.” People were ready for their long-awaited vacations, and analysts expected an increase in bookings. But the COVID-19 delta variant changed that excitement, and the stock lost 35% between February and May.
Now, the cycle is repeating itself.
Shortly after the COVID-19 travel ban was lifted, when the “omicron” variant hit the news, shares of Airbnb dropped to $168 from $207.
It’s not all bad though. Airbnb is still a young company in a relatively sparse industry. Only in the last few years have hotel chains started to compete with Airbnb by offering similar rentals.
Even if copycats enter the market over the next few years, Airbnb has the brand recognition that comes with being first in the digital lodging industry. The name is almost synonymous with vacation at this point.
As far as how the new COVID-19 variant will impact this industry as a whole, companies are better equipped and know more about the spread of the virus. More people are vaccinated, boosters have been approved – all signs point to improvement.
Airbnb is a still long-term hold set to capture a big future trend. Its services will continue to be in demand. And as we work our way through the pandemic, Airbnb stands to benefit from people’s need for a respite.
And get this: Airbnb’s revenue for the third quarter was $2.2 billion – 36% higher than in the same pre-COVID quarter back in 2019. If it’s that high during the pandemic, imagine how much higher it could move once COVID-19 is a thing of the past.
Analysts set a price target of $250 per share for Airbnb for the next year. But again, as we move out of the pandemic, it wouldn’t be surprising to see Airbnb grow beyond that.
Stock to Buy in 2022, No. 2: GoPro
Adventure camera company GoPro Inc. (NASDAQ: GPRO) is one hell of a comeback story.
From its IPO back in 2014 and to the 2020 pandemic, its stock fell 97%. But its management team kept the company going by moving away from a more traditional revenue streams and establishing an incredible subscription business – with high profit margins to boot.
It helps that the company offers killer products. GoPro’s HERO10 camera shoots video in 5.2K high definition for the modest price of $499. To put that into perspective, its most comparable competitor comes in at $3,500.
In the past, GoPro sold its cameras through big-box retailers. That’s all changing though – GoPro is moving to a direct-to-consumer model via its GoPro.com website. That means higher gross margins since the company keeps the retailers’ cut of profits.
The most notable change is the GoPro.com subscription. For $49.99 per year, consumers get exclusive discounts, unlimited cloud storage, live streaming, and damaged product replacements. And subscription growth has been incredible.
The company expects to have 1.7 million paying subscribers moving into 2022, which will generate $90 million in revenue. But the 70% to 80% gross margins are what really shine. This highly profitable and quick-growing business segment will have a positive impact on GoPro’s earnings.
GoPro is certainly generating the growth to back that up and might be set to deliver top-tier returns in 2022. Analysts estimate the stock to grow as much as 100% over the next year.
Stock to Buy in 2022, No. 1: Lemonade
Lemonade Inc. (NYSE: LMND) is radically disrupting the insurance market. But shares of the artificial intelligence-based insurance company were hit hard in 2021.
Nearly six months after its IPO in July 2020, Lemonade shares jumped more than 120% by the start of 2021. But like many IPOs, the momentum from all the hype fizzled out. And then the Texas freeze happened…
Since the company had to pay out a lot of claims following the Texas freeze, it hurt the company’s net loss ratio. In the first quarter, the company’s loss ratio hit 121% – the company paid out more money than it made in claims.
Since then, its net loss has gone down by a bit.
In the third (and most recent) quarter, Lemonade’s loss ratio was 77%. That’s still higher than what the company wants; the ideal loss ratio should be under 75%. But that’s partly due to the launch of newer products, like car and pet insurance.
But Lemonade’s AI is really what sets the company apart, and it’s still being fine-tuned for those newer products.
The result is a higher net loss ratio for those products. Yet the AI is getting more accurate, improving the net loss ratio by 4% and the homeowners’ loss ratio by 52% year over year. As Lemonade’s AI gets more accurate, these lower loss ratios increase substantially.
There’s also the speed and convenience of its platform, which is growing a base of customers who are spending more on Lemonade over time. In the third quarter, its customer count increased 45% year over year to 1.36 million. The premium per customer grew 26% to $254.
While Lemonade is a more speculative stock at this point, some analysts expect the stock to hit a price target of $95 in 2022 – a gain of nearly 120%.
So, even though Lemonade stock was hit hard in 2021, don’t rule it out. The company is showing signs of improvement to its loss ratio as its AI and products mature, which means that this could be growth stock well worth holding moving through 2022.
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Source: Money Morning