10 Best Cyclical Stocks To Buy in 2022

Published on October 6, 2022 at 9:10 am by Hamna Asim in Hedge Funds, News

In this article, we discuss 10 best cyclical stocks to buy in 2022. If you want to see more stocks in this selection, check out 5 Best Cyclical Stocks To Buy in 2022.

The performance of cyclical stocks is largely tied to economic recovery. Amid global inflation, threats of recession, and rampant rate hikes, these equities might be trading at a significant discount as investors ignore the potential for global economic rebound.

In late July, Courtney Garcia, Payne Capital Market senior wealth advisor, told CNBC that investors should monitor the stock market for the next 6 to 12 months, rather than worry about what happens the next day or week. She believes that inflation will eventually ease, be it at the end of 2022 or next year, and she advised investors to maintain positions in cyclical stocks, in addition to inflation hedges like energy and commodities for a balanced portfolio.

As of mid-September, analysts at JPMorgan Chase believe that the US might be able to achieve a soft landing, as latest data indicates rebounding growth and bolstered consumer confidence. Markets can rally on the back of government capital stimulus in China and energy transition plans in Europe. Investors in the United States believe that inflation may have peaked, and they look forward to a stock market recovery. This is a positive catalyst for cyclical stocks, as risk appetite in the market will also increase. Some of the best cyclical stocks to buy in 2022 include Lowe’s Companies, Inc. (NYSE:LOW), Starbucks Corporation (NASDAQ:SBUX), and Airbnb, Inc. (NASDAQ:ABNB).

Our Methodology

We carried out a detailed assessment of cyclical industries, including restaurants, hotels, home improvement, high-end fashion retailers, and automobile manufacturers. We selected the following stocks based on positive analyst coverage, solid demand, and strong hedge fund sentiment.

We have arranged the list according to the hedge fund sentiment around the securities, which was assessed from Insider Monkey’s Q2 2022 database of about 900 elite hedge funds.

Best Cyclical Stocks To Buy in 2022

10. Wynn Resorts, Limited (NASDAQ:WYNN)

Number of Hedge Fund Holders: 26

Wynn Resorts, Limited (NASDAQ:WYNN) was founded in 2002 and is based in Las Vegas, Nevada. The company owns and operates integrated resorts, with casinos, private gaming salons, luxury hotel towers, health clubs, spas, and pools. The stock has climbed over 20% in the last month as of October 4, and this is primarily attributable to positive news related to relaxation of border restrictions in China.

On September 26, Jefferies analyst David Katz upgraded Wynn Resorts, Limited (NASDAQ:WYNN) to Buy from Hold with a price target of $75, up from $62, in light of the Macau government announcing the resumption of visitation access from Mainland China through tours and e-visas by the end of October to early November, calling it “the moment we’ve been waiting for.”

According to Insider Monkey’s data, 26 hedge funds were long Wynn Resorts, Limited (NASDAQ:WYNN) at the end of the second quarter of 2022, compared to 32 funds in the last quarter. Israel Englander’s Millennium Management is a notable position holder in the company, with 360,232 shares worth $20.5 million.

Like Lowe’s Companies, Inc. (NYSE:LOW), Starbucks Corporation (NASDAQ:SBUX), and Airbnb, Inc. (NASDAQ:ABNB), Wynn Resorts, Limited (NASDAQ:WYNN) is one of the best cyclical stocks to buy in 2022.

In its Q3 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Wynn Resorts, Limited (NASDAQ:WYNN) was one of them. Here is what the fund said:

“In the most recent quarter, we exited the Fund’s holdings in Wynn Resorts, Limited (NASDAQ:WYNN) due to: (i) ongoing COVID-19-related travel restrictions in China, Macau, and Singapore; and (ii) the Macau government’s announcement to tighten its casino regulatory oversight.”

9. V.F. Corporation (NYSE:VFC)

Number of Hedge Fund Holders: 29

V.F. Corporation (NYSE:VFC) is a Colorado-based company engaged in the design, marketing, and distribution of branded lifestyle apparel, footwear, and related products in the Americas, Europe, and the Asia Pacific. V.F. Corporation (NYSE:VFC) distributed a $0.50 per share quarterly dividend on September 30. The company delivers a dividend yield of 6.29% as of October 4.

Deutsche Bank analyst Gabriella Carbone on September 30 maintained a Buy rating on V.F. Corporation (NYSE:VFC) but lowered the price target on the shares to $43 from $56. While the analyst is encouraged by V.F. Corporation (NYSE:VFC)’s long-term outlook and commitment to deliver resilient shareholder returns, she is cautious around short-term patterns, especially at the Vans brand.

According to Insider Monkey’s second quarter database, 29 hedge funds held stakes worth $316.30 million in V.F. Corporation (NYSE:VFC), compared to 28 funds in the earlier quarter worth $330.35 million. Ric Dillon’s Diamond Hill Capital is the biggest stakeholder of the company, with 6.90 million shares valued at approximately $305 million.

Here is what Diamond Hill All Cap Select Fund Concentrated Fund has to say about V.F. Corporation (NYSE:VFC) in its Q1 2022 investor letter:

“Apparel and footwear company V.F. Corporation underperformed due to the longer-than-expected recovery for its Vans brand, elevated freight costs dampening gross margin, and its modest exposure to the slowdown in China. The company’s remaining brands are performing well. Although consolidated results have been choppy, we believe management is making the right strategic decisions for future profitable growth.”

8. Darden Restaurants, Inc. (NYSE:DRI)

Number of Hedge Fund Holders: 32

Darden Restaurants, Inc. (NYSE:DRI) owns and operates full-service restaurants in the United States and Canada. The company has several restaurant brands including Eddie V’s, The Capital Grille, Olive Garden Italian Restaurant, LongHorn Steakhouse, Bahama Breeze, Seasons 52, Yard House, and Cheddar’s Scratch Kitchen. On September 21, Darden Restaurants, Inc. (NYSE:DRI) declared a $1.21 per share quarterly dividend. The dividend is distributable on November 1, to shareholders of record on October 10. Darden Restaurants, Inc. (NYSE:DRI) delivers a dividend yield of 3.69% as of October 4. It is one of the best cyclical stocks for 2022.

Truist analyst Jake Bartlett on September 23 raised the price target on Darden Restaurants, Inc. (NYSE:DRI) to $142 from $136 and kept a Buy rating on the shares after its FQ1 results. The earnings and the latest “strong improvement” in trends show that restaurant demand is resilient despite macro pressures, the analyst told investors. He further stated that while Darden Restaurants, Inc. (NYSE:DRI) observed softer demand from lower income consumers, it was “not severe”, and the management also assured about solid demand from other income levels.

According to Insider Monkey’s data, 32 hedge funds were long Darden Restaurants, Inc. (NYSE:DRI) at the end of June 2022, with collective stakes worth $447.4 million, compared to 32 funds in the last quarter worth $241.8 million. D E Shaw is a significant position holder in the company, with 398,773 shares valued at $45 million.

7. Chipotle Mexican Grill, Inc. (NYSE:CMG)

Number of Hedge Fund Holders: 39

Chipotle Mexican Grill, Inc. (NYSE:CMG) is a California-based company that owns and operates Chipotle Mexican Grill restaurants. The company has more than 3,000 restaurants in the United States, Canada, the United Kingdom, and Europe. On September 27, Chipotle Mexican Grill, Inc. (NYSE:CMG) announced some new tech initiatives it is employing to improve its employee and customer experience. These include AI and machine learning to monitor ingredient levels in real time, autonomous cooking assistants, and advanced location-based tech to enhance app functionality.

On September 22, Stephens analyst Joshua Long initiated coverage of Chipotle Mexican Grill, Inc. (NYSE:CMG) with an Overweight rating and a $1,900 price target. The analyst views Chipotle Mexican Grill, Inc. (NYSE:CMG) as a “best-in-class operator” within the fast casual dining segment that is positioned advantageously to benefit from consumer demand for its brand experience. The company’s growth story is “anchored by the compelling unit economics and continued growth of its digitally-enabled store base,” the analyst told investors in a research note.

Among the hedge funds tracked by Insider Monkey, 39 funds were long Chipotle Mexican Grill, Inc. (NYSE:CMG) at the end of Q2 2022, compared to 38 funds in the earlier quarter. Bill Ackman’s Pershing Square is the leading position holder in the company, with 1.10 million shares valued at $1.4 billion.

Here is what Pershing Square Holdings specifically said about Chipotle Mexican Grill, Inc. (NYSE:CMG) in its Q2 2022 investor letter:

“Chipotle Mexican Grill, Inc. (NYSE:CMG) continued its impressive performance in 2022 driven by the ongoing recovery of in-restaurant sales, price increases to cover cost inflation, and successful menu innovation including pollo asado. During the second quarter, Chipotle continued to lead the restaurant industry in growth for both same-store sales (“SSS”) and new restaurants, with SSS growing 10% year-over-year or 30% on a three-year cumulative basis. On-premise sales grew 36% as consumers resumed pre-pandemic routines, while digital sales declined only 3%, continuing their persistence despite the growth of conventional sales. Chipotle remains on track to grow its store base by approximately 8% this year with a longer-term annual store growth aspiration of nearly 10% once current headwinds around construction, permitting, and supplies ease.

We believe Chipotle is one of the best-positioned consumer companies for the current inflationary world. Given significant inflation in food and labor costs, management has planned a menu price increase of approximately 4% for August following a similarly-sized price increase in March. The company has tremendous pricing power due to the superb quality of its food which is priced at a discount to many competitors with inferior offerings, marketing focused on food quality and freshness rather than cost, and a customer base that over-indexes to higher-income consumers, some of whom are trading down from pricier alternatives.

Chipotle’s economic model remains firmly intact, with restaurant-level margins in excess of 25% in the second quarter, up 0.8% year-over-year, and a consistent level of profitability expected for the current quarter. The company is debt-free and generates nearly all its sales in the U.S., insulating its earnings from the foreign currency headwinds facing many other large consumer companies. …” (Click here to read the full text)

6. Yum! Brands, Inc. (NYSE:YUM)

Number of Hedge Fund Holders: 40

Next on our list of the best cyclical stocks is Yum! Brands, Inc. (NYSE:YUM), an operator and franchisor of quick service restaurants worldwide. The company’s restaurants include KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill. On September 12, Yum! Brands, Inc. (NYSE:YUM) announced that its board approved a new $2 billion share repurchase authorization through June 30, 2024. The new program will be effective upon the conclusion of the last authorization, of which $236 million remained available as of September 12.

Bernstein analyst Danilo Gargiulo on September 7 initiated coverage of Yum! Brands, Inc. (NYSE:YUM) with an Outperform rating and a $144 price target. The analyst expects KFC’s cumulative five-year sales from international markets excluding China to drive sales equivalent to the size of China and also likes Taco Bell’s brand, digital engagement, and attraction for Gen-Z, while he is on the sidelines about Pizza Hut’s outlook. However, he noted that Pizza Hut’s “transformation into a more LSR-ready concept leaves room for upside.”

Among the hedge funds tracked by Insider Monkey, 40 funds were bullish on Yum! Brands, Inc. (NYSE:YUM) at the end of Q2 2022, compared to 45 funds in the last quarter. Ken Griffin’s Citadel Investment Group is the largest stakeholder of the company, with 2.6 million shares worth $297 million.

In addition to Lowe’s Companies, Inc. (NYSE:LOW), Starbucks Corporation (NASDAQ:SBUX), and Airbnb, Inc. (NASDAQ:ABNB), elite hedge funds are piling into Yum! Brands, Inc. (NYSE:YUM) for exposure to cyclicals.

Click to continue reading and see 5 Best Cyclical Stocks To Buy in 2022.

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Published on October 30, 2024 at by Inan Dogan, PhD

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