It was a bad year for the stock market. The S&P 500 is down 20%, the Industrial Average is down 10%, and the tech-laden Nasdaq is down 30%. There is a war in Ukraine, raging inflation, and a looming global recession, so blame it.
The days of just buying the S&P 500 or some other broad index fund to get double digit returns seem to have ended, and experts think it is now a stock pickers market.
Forbes tapped Morningstar to identify fund managers who have beaten their benchmark this year or over a longer period of time. The best stock ideas for the year are listed here.
The stock prices and fund returns are the same.
ValueWorks is a company Partners Long-Biased is a long-term strategy that finds differences between a company's assets and prices.
The five-year average annual return is 23.9%.
The market capitalization is $5.5 billion.
There were $3.2 billion in revenues for the 12-month period.
It's ideal for a bumpy period in markets as it's a defensive play with huge cash generation that is selling at an attractive valuation. The company formed in July after the merger of Oasis and Whiting. Many fund managers bought the distressed debt in the two companies for pennies on the dollar, because they had spent billions of dollars building resources in the Permian Basin. At their last peak five years ago, Oasis and Whiting had valuations far above the current $5.6 billion market cap of Chord Energy. The two recently merged enterprises are producing far more oil than they were back then. Chord Energy has returned more than $1 billion in free cash flow to shareholders in the last year and a half, and that is cash money in shareholders' pockets.
The market capitalization is over $4 billion.
The year ended with revenues of $2.3 billion.
Air Lease is a company that purchases commercial aircraft and sells them to airlines. Air Lease has been financially healthy even though the industry has gone through a lot with the Pandemic. The industry seems to be on the mend. Air Lease is poised to benefit from its pricing flexibility and huge fleet of aircraft even though the company has some debt. They own roughly $30 billion worth of aircraft that are probably continuing to appreciate in value annually even during inflationary environments. During his time in the 80s and 90s, airplanes went up in value. It doesn't make a lot of sense not to buy at current valuations.
There is a fund for small-Cap Opportunities.
There is a portfolio of small to mid-sized companies.
The 5-year average annual return is 22%.
The market capitalization is $7.1 billion.
$6.3 billion in revenue was achieved in the 12-month period.
A long-time holding which the fund has owned for more than a decade, Davolos highlights a company that he thinks covers all the right niches that are relevant for national security. Unlike other companies that make missiles and planes, CACI specializes in battlefield communications. These areas have higher secular growth than capital goods focused defense companies. The market still sees it as a traditional defense contractor with its fortunes tied to defense budgets and the current administration. Despite a slowing economy with interest rates still high, most of the revenue comes from within the Department of Defense, he says. When compared with more traditional defense contractors with heavy capital expenditures, the company's shares are still cheap.
The market capitalization is more than one billion dollars.
There were $42 million in revenue during the 12-month period.
Davolos believes that the shares of the Permian Basin Royalty Trust could be poised for further upside in the future. The lease on which the trust is based was purchased by a private company just over two years ago. The small-cap operator has made some exciting strides improving old wells by injecting fluid or carbon dioxide, but those costs have obscured the dividends, leading to a retail selloff in the stock. The stock could easily distribute a dividend of $3 to $4 per share next year. He says that Blakckbeard is ramping up production in these wells significantly, which will also pay off. The fund started buying shares on the cheap in the middle of 2020 because of the collapse in energy prices. As new wells come online and oil and gas prices go up, the dividends will rerate.
There is a wide-ranging portfolio of mid- to large-sized growth and value companies.
The 10-year average return is 6.2%.
The market capitalization is $65 billion.
There were revenues of $59.8 billion for the 12-month period.
HCA is the largest hospital company in the US with more than 180 sites of care and has developed a market share big enough so they can use scale to create the best facilities. HCA, a for-profit operator that is one of the nation's leading providers of healthcare services, is seeing its shares fall in the next four years. When the stock tanked after an earnings warning, the fund owned the stock. HCA's top line was hard-hit during the Pandemic, both by hospital patients delaying visits or elective surgeries as well as by wage inflation for in-demand nurses, though both of those concerns have been gradually resolving, according to the report. HCA will be able to eventually pass price increases on to consumers, not to mention continue to generate robust cash flows, even though the stock has struggled as a result. Most hospitals are not-for-profit, but the company is able to invest significant cash to upgrade facilities and attract better doctors.
The market capitalization is $150 billion.
There were $121 billion in revenues during the 12-month period.
At the end of September, the fund's top 10 holding of the company may have a mountain of debt. The company has used these years of low rates to take advantage of cheap financing with a weighted average maturity in 2037 and weighted average coupon of around 3.5%. These aren't frightening credit metrics. He still likes Comcast because of its under-the-radar dividend, which has grown over the past decade and now yields just over 3%, despite its shares falling 32% this year. Market share is so high that subscriber growth is harder to get, but at the same time pricing can be used as a lever, so it is a double-edged sword. There is an upcoming put option that could allow the company to be sold to Disney. At a minimum total valuation of around $27 billion, that could result in $9 billion for the cable company.
The T. Rowe Price Dividend Growth Fund is a blend of large-cap companies with a focus on dividends.
The 10-year average annual return is 12.4%.
The market capitalization is $71.2 billion.
The year ended with revenues of $19.4 billion.
He likes the company because it has reasonable earnings visibility. The fund has owned the stock for a long time, but it has struggled with disappointing margins and an FDA recall on its Alaris infusion pump. The company has gotten its act together with good new product flow, a healthy cost management program, some small M&A deals, and improved margins. The relaunched Alaris pump is still a wild card and probably won't happen until at least 2024, but that has helped boost sentiment. As a company improves and comes out of a troubled period, there is good money to be made. It is raising its dividend steadily over time, which is a sign of a healthy, consistently growing business, he says. In a world where growth is slowing, all of that is important.
The market capitalization is $150 billion.
There were revenues of $31.7 billion for the 12-month period.
Philip Morris International has a 5% dividend yield and is a stock where you can wait. Philip Morris took a hit from the strong U.S. dollar earlier in the year, but the currency has since weakened, which could be a good thing. He likes the main product, the iQOS, a device that uses heat to consume tobacco. Compared to the traditional tobacco business, the reduced risk product category has higher margins. Philip Morris has invested roughly $9 billion in this category and is now well ahead of the competition. Philip Morris has a distribution line for iQOS in the United States thanks to the acquisition of Swedish Match. Philip Morris paid several billion dollars to break the existing agreement between the two companies, paving the way for a launch in U.S. markets that could be as soon as 2036. It has positive implications for the company.
25 core equity positions are in the portfolio of companies that sell below private market value.
The 10-year average return is 5.3%.
The market capitalization is over $1 billion.
There were $637 million in revenues for the 12-month period.
This tracker stock is up 12% this year and it owns the Atlanta Braves baseball team and real estate around its ballpark. If you buy the stock at market today, you will be buying equity in the Braves at a valuation of around 1.5 billion dollars. Marangi thinks that the Braves could be worth more than $3 billion if they were to be sold. There has been no decline in the public's appetite for live entertainment post-pandemic, despite the fact that sports franchises tend to trade as multiple of revenue. Liberty Media announced in November that it would spin off the Braves into a separate entity. The team could be sold to a private buyer once that happens. Sports franchises have been great stores of value in both inflationary and deflationary environments.
The market capitalization is $7.3 billion.
The year ended with revenues of $17.1 billion.
Marangi has owned the stock of the satellite TV and wireless services provider for decades and has high hopes for the future. He says that communication services has been the worst performing sector in the S&P 500. There is a lot of assets in the stock. He says that the company's traditional satellite video business is a melting ice cube, as it has taken a hit from cord-cutting. Marangi is excited about the company's wireless-network business, as it builds out a 5G network. The company eventually monetizes its investment and the market is only pricing in a fraction of the value of those licenses. According to Marangi, this brand-new network won't be held back by 4G subscribers who have to transition to 5G. He predicts a potential merger between the two companies, which would extend the life and cash flow of both companies.
The Jensen Quality Growth Fund has a large portfolio of growth companies.
The 10-year average annual return is 13.0%.
The market capitalization is $90 billion.
The year's revenues were $48.3 billion.
TJX has 4,700 stores in nine countries and three continents and operates brands like T.J. Maxx and Marshalls. The stock is relatively resilient with defensive characteristics and a strong correlation to consumer spending that can help it weather a slowing economy. As people have less money to spend, TJX plays a valuable role from that perspective. A big selling point of TJX is its great deals, and thanks to prices that are low relative to peers, that drives customer loyalty. TJX stands to benefit from the trade-down effect andbargain theory as consumers cut back on spending. The stock has performed better than the market over the course of the year.
The market capitalization is nearly half a trillion dollars.
The year's revenues were $321 billion.
The largest managed- healthcare and insurance company in the country is UnitedHealth Group. He describes UnitedHealth as a growth company at the same time, as well as a defensive one, with shares rising 3.5% this year. A top five holding in the fund, Schoenstein admires the company's resilient business model and ability to generate substantial cash flow. In the future, that will be more relevant than it was in the past. The company has grown so much that it can scale up or down depending on the economy. While the stock is susceptible to news of potential government regulation in the healthcare sector, the threat seems to have died down as more people get access to insurance and Medicaid programs around the country.
The main focus of the fund is small to mid-sized companies.
The 10-year average return is 10.1%.
The market capitalization is close to $12 billion.
There were $7.2 billion in revenues for the 12-month period.
The number two player in the cruise line industry, Royal Caribbean Cruises, has been owned by the Ariel Fund for over a decade. Like the other major cruise operators, Royal Caribbean struggled as the industry was crippled by the H1N1 swine flu. "Not many companies can be shut down for a year and a half then survive and prosper on the other side of that." Markets continue to take a very short-term outlook on the cruise industry, with investors growing fearful of headlines relating to everything from energy prices to geopolitics, he says. The market isn't giving Royal Caribbean more credit for their recent earnings guidance Despite a 37% drop in the stock this year, Kuhrt points to significant upside and management's goal of double-digit earnings power by 2025. Occupancy rates have rebounded significantly and cruise pricing is now above pre-pandemic levels. Customer retention is a large part of the story. The cruise line industry understands its customers better than any other industry.
The market capitalization is over $12 billion.
The year ended with revenues of $5.7 billion.
The market leader in enterprise asset intelligence trades at a significant discount to its underlying value. Amazon, Target, and many other companies are customers of Zebra Technologies. While the stock was at $600 per share a year ago, it has fallen to $250 due to its ties to the technology sector. The business model used to be just scanning a barcode, but now it's complex and the earnings power of the business is underestimated by investors. Radio-frequency identification (RFID) is one of the newer technologies that he is optimistic about. Despite Wall Street's concerns about an economic slowdown, the company has continued to adapt and grow, despite the fact that the fund has owned Zebra's stock for over a decade.
The Alger Mid-Cap Focus Fund is focused on mid-sized companies.
The average annual return since inception is 9%.
The market capitalization is $32 billion.
There were $7 billion in revenues in the 12-month period.
This waste collection, disposal and recycling company in Texas is a good example of a business that will be able to weather the economic downturn. Waste Connections serves millions of customers across the United States and Canada with a focus on exclusive and secondary markets that help guarantee "durable revenue growth." Waste Connections has a strong track record of leading margins and cash flow in a business that is less focused on volume growth and more focused on pricing. During recessions, waste management is a good business. Going into next year, she thinks Waste Connections will be even more resilient because of the company's pricing power and market selection strategy. The company could "continue to be an M&A flywheel" if it keeps making acquisitions to shore up market share.
The market capitalization is $20.7 billion.
The year ended with revenues of $1.2 billion.
Insulet is a medical device company focused on treating diabetes patients through its body-worn Omnipods. The shares of one of the fund's top 10 positions have risen 10% this year. Thanks to the company's newest device, the Omnipod 5 automated delivery system, Insulet's sales have gotten a huge boost this year. It's the first tubeless, automatedinsulin delivery system on the market. She says that with many diabetes patients still using tube-based pumps or administering injections, Omnipods has a clear advantage to both alternatives. The stock is particularly appealing in an economic downturn due to its high revenue visibility and predictability.
The Zevenbergen Growth Fund mostly invests in consumer and tech companies.
The five-year average annual return is 7.
The market capitalization is $3.6 billion.
There were $424 million in revenues for the 12-month period.
DoubleVerify provides verification and safety for digital brand advertising. DoubleVerify protects brand safety and helps brands and publishers with viewability. Despite being profitable with top-line growth, shares have declined over 30% this year and are currently trading below their initial share offering price. DoubleVerify has seen a correction this year but there is a big opportunity. During an economic downturn, markets are concerned about brand safety with advertising, she says. The fear of a recession should be prevented by this kind of ad spending. New entrants into digital advertising are also seen as opportunities. DoubleVerify's insurance is important to advertisers because of the risk of fraud.
The market capitalization is $11 billion.
The year ended with revenues of $753 million.
Bill.com is a cloud-based software that helps small businesses with accounts payable and receivables. As money moves in a rising-rate environment, Bill.com could benefit. According to Zevenbergen, the founder-led company could present an " incredible opportunity" at an attractive valuation thanks to its high-growth and profitability. She says that the company is well- positioned, compared with its peers. Money isn't free anymore and that's likely to erode competition from tech companies. Bill.com's payment volume has fallen slightly due to a more challenging economic environment, but that has been offset by pricing power and new customers.
The U.S. Equity Growth Fund is managed by Baillie Gifford.
The 5-year average annual return is 4.2%.
There is a market capitalization of $2 billion.
$338.7 million was generated in the last 12 months.
An education tech company known for its app that teaches languages has been added to the fund. The company's shares have fallen 30% this year, but not all growth companies are the same, according to the author. The edtech company has reported five straight quarters of user growth, with revenue rising roughly 50% year over year. The app offers free language courses in the form of missions that are unlocked in sequence, with different lessons that are dynamic and adaptively constructed to each individual learner. If you aren't living in that country, it's hard to stay motivated to learn a new language. Duolingo has a way to overcome this. The company has been able to grow organically with relatively low marketing outlays since the app is free to use. The company has room for growth in the form of new products and paid subscriptions, not to mention the fact that it has a great product.
The market capitalization is $43.6 billion.
The year's revenues were $5.2 billion.
Shopify is the fifth largest holding in the U.S. Equity Growth fund. Millions of businesses around the world are powered by the central nervous system. She says that the business has seen a significant price decline as companies that are taking losses for future growth have been pulled down by market sentiment. She likes the company moving into enterprise markets and launchingshopify audiences, a premium tool that helps businesses find new customers through focused digital advertising on different platforms. She believes that the ability of the company to adapt and be resilient will continue.