In this article, we discuss the 10 best Roth IRA stocks to buy in 2022. If you want to read about some more Roth IRA stocks, go directly to 5 Best Roth IRA Stocks To Buy in 2022.
On March 16, the Federal Reserve raised interest rates by a quarter percentage point, or 25 basis points, increasing financial costs for borrowing and credit overnight. The central bank also signaled that six more rate hikes could be on the way in the coming months as the government looked to tame inflation without damping economic growth prospects. This was the first rate increase in almost four years. It also calms a volatile stock market that witnessed a massive swing from growth towards value in the past few months.
Investors Eager to Replicate Thiel Roth IRA Success in Volatile Market
However, the S&P 500 is still dominated by five big tech firms and investors, who have become growth-friendly in the past few years, are actively looking towards reliable performers in the tech sector that are trading at bargain prices in light of recent economic conditions for long-term benefits. The example of Peter Thiel, a famous tech entrepreneur, looms large over the finance world. Thiel grew a $1,500 investment in payments giant PayPal through a Roth IRA into a massive $5 billion tax-free fortune over the course of two decades.
Investors are eager to replicate this strategy and grow their own Roth IRA investments into sizable fortunes. Some of the top Roth IRA stocks to buy in 2022 according to hedge funds include Visa Inc. (NYSE:V), Verizon Communications Inc. (NYSE:VZ), and Apple Inc. (NASDAQ:AAPL), among others discussed in detail below.
Our Methodology
The companies that have long-term growth catalysts, sound business fundamentals, and positive analyst ratings were selected for the list. Hedge fund sentiment was included as a classifier as well. Data from around 900 elite hedge funds tracked by Insider Monkey was used to identify the number of hedge funds that hold stakes in each firm.
Best Roth IRA Stocks To Buy in 2022
10. BWX Technologies, Inc. (NYSE:BWXT)
Number of Hedge Fund Holders: 26
BWX Technologies, Inc. (NYSE:BWXT) makes and sells nuclear components. Top hedge funds hold bullish positions in the stock. Among the hedge funds being tracked by Insider Monkey, Wisconsin-based investment firm Cardinal Capital is a leading shareholder in BWX Technologies, Inc. (NYSE:BWXT) with 1.6 million shares worth more than $79 million.
As spending on clean energy technology increases, nuclear companies like BWX Technologies, Inc. (NYSE:BWXT) will benefit as countries around the world use nuclear as a key transition from fossil fuels to renewable energy sources. Bank of America analyst Ronald Epstein has a Buy rating on the stock with a price target of $65. The analyst recently noted that increased spending on defense was a growth catalyst for the stock as well.
Just like Visa Inc. (NYSE:V), Verizon Communications Inc. (NYSE:VZ), and Apple Inc. (NASDAQ:AAPL), BWX Technologies, Inc. (NYSE:BWXT) is one of the stocks on the radar of elite investors.
In its Q3 2021 investor letter, Upslope Capital Management, an asset management firm, highlighted a few stocks and BWX Technologies, Inc. (NYSE:BWXT) was one of them. Here is what the fund said:
“BWX Technologies, Inc. (NYSE:BWXT) designs and produces nuclear reactors, components and fuel, primarily for the U.S. Government and Navy (and, more recently, NASA). The company is the sole supplier for its Naval products (~75% of sales), which are used for the power and propulsion of all of the Navy’s aircraft carriers and submarines. With nuclear subs (aka “boomers”) forming the backbone of the “Sea” leg of the Nuclear Triad, BWX plays a vital and sensitive role supporting the national security of the United States. Of course, BWX is exceptionally well-positioned should the saber-rattling vis-à-vis China continue. The recent Aukus security pact, which may eventually benefit BWX, illustrates the urgent and strategic importance of maintaining a modern nuclear-powered sub fleet.
Even if relations with China stabilize (and hopefully they do), BWX Technologies, Inc. (NYSE:BWXT) shares seem poised to outperform. After four years of essentially going nowhere, the stock currently trades near the low-end of its historical valuation range – just over 13x EBITDA vs. typical range of 13-16x. With a literal monopoly position (albeit against a sole purchaser), BWX has historically generated modest top-line growth with attractive returns on capital (mid-20s). Given the stability of the business and its competitive position, as well as the current geopolitical backdrop, current valuation seems very reasonable.
Importantly, beginning in 2017 BWX Technologies, Inc. (NYSE:BWXT) embarked on an aggressive capex expansion program, eventually tripling capex as a percentage of sales. In addition to ramping capacity to support Navy growth, BWX spent heavily developing its medical/radioisotope business. While not yet concluded, there is light at the end of the tunnel that should bode well for shares. 2020 appears to have been the capex peak and BWX seems on track for more normalized capex by the end of 2022. This should lead to de-levering the balance sheet (from an already-reasonable 3x gross debt/EBITDA), a potential acceleration in capital returned to shareholders, and/or the prospect of increased M&A.
Lastly, while BWX’s core today is its Naval operations, there is long-term optionality from the other units (~25% of revenue), which are currently focused on Canadian nuclear power (fuel and components), medical, space (NASA) power, and microreactors. BWX faces little competition, if any, across many of these areas. A sizable portion (>50%) of the recent capex program was also invested in a new Mo-99/Tc99 radioisotope (essentially a cleaner, more cost efficient alternative to current products on market – used in cardiology, oncology, neurology, and diagnostics) production line that should lead to an acceleration in growth outside of Naval operations.
Major risk factors for BWX Technologies, Inc. (NYSE:BWXT) include the possibility of physical accidents, production defects and resulting liabilities, as well as cost pressures due to strained government budgets and/or rising input costs, some leverage (~2x net), and ESG flow headwinds (not fundamental, of course, but a reality).”
9. International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 44
International Business Machines Corporation (NYSE:IBM) provides integrated solutions and services. The company has ramped up spending in the cloud, artificial intelligence, and software segments, marking a key shift from a hardware-based business model. This will increase the footprint of the firm in high-growth areas in the next decade or so. On January 25, BMO Capital analyst Keith Bachman raised the price target on the stock to $155 from $153 and kept a Market Perform rating, appreciating the earnings results of the firm in the fourth quarter of 2021.
Elite hedge funds hold large stakes in International Business Machines Corporation (NYSE:IBM). Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Arrowstreet Capital is a leading shareholder in International Business Machines Corporation (NYSE:IBM) with 3.2 million shares worth more than $440 million.
In its Q2 2020 investor letter, Distillate Capital, an asset management firm, highlighted a few stocks and International Business Machines Corporation (NYSE:IBM) was one of them. Here is what the fund said:
“AT&T and International Business Machines Corporation (NYSE:IBM) exited the portfolio as they no longer met the quality criteria for inclusion with AT&T exceeding the debt limit and International Business Machines Corporation (NYSE:IBM) falling out due to deteriorating long-term fundamental stability.”
8. Ford Motor Company (NYSE:F)
Number of Hedge Fund Holders: 53
Ford Motor Company (NYSE:F) is an automobile manufacturer. Hedge funds have been loading up on the stock. At the end of the fourth quarter of 2021, 53 hedge funds in the database of Insider Monkey held stakes worth $1.7 billion in Ford Motor Company (NYSE:F), up from 51 the preceding quarter worth $1.6 billion.
Ford Motor Company (NYSE:F) has stepped up investments in the electric vehicles sector and looks set to release new products, ramp up production, and eventually expand outside of North America in the coming years. RBC Capital analyst Joseph Spak has a Sector Perform rating on the stock with a price target of $22. The analyst recently lauded plans by the firm to reorganize into two distinct business units focused on internal combustion and electric tech respectively.
In its Q1 2020 investor letter, Greenlight Capital Fund, an asset management firm, highlighted a few stocks and Ford Motor Company (NYSE:F) was one of them. Here is what the fund said:
“General Motors (GM) was a disappointment. The damage from last year’s strike consumed most of the cash flow GM would have otherwise generated in 2019. We had expected a strong bounce back in earnings and cash flow in 2020, but the annual guidance, while meeting Wall Street expectations, was worse than we expected. Further, the cash burned during the strike needed to be re-earned in order to protect GM’s investment grade rating. Pre-crisis, there would have been, at best, a minimal share repurchase late in the year. At the analyst day, our hopes that 2020 would finally be the year were dashed. We sold our stock. Over our five-year holding period, we made a 9.6% IRR on GM. In the difficult environment, its most comparable peer, Ford Motor Company (NYSE:F), lost about half its value.”
7. Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Holders: 94
Adobe Inc. (NASDAQ:ADBE) is a diversified software company. As work from home models evolve, the company can leverage its position as a leading provider of software services for creative professionals to further expand in the software domain in the coming years. Jefferies analyst Brent Thill has a Buy rating on the stock with a price target of $550.
Adobe Inc. (NASDAQ:ADBE) is one of the favorite software stocks in the finance world. Among the hedge funds being tracked by Insider Monkey, Washington-based Fisher Asset Management is a leading shareholder in Adobe Inc. (NASDAQ:ADBE) with 6.7 million shares worth more than $3.8 billion.
Here is what Polen Capital has to say about Adobe Inc. (NASDAQ:ADBE) in its Q1 2021 investor letter:
“Adobe Inc. (NASDAQ:ADBE) and Autodesk are both prime examples of the rotation that occurred during the quarter. Both are dominant businesses in their respective markets, which are experiencing structural tailwinds. Despite each business’s position of strength, the stocks of cyclicals and businesses with higher leverage and lower profitability were more favored this past quarter. In stark contrast, Adobe Inc. (NASDAQ:ADBE) and Autodesk both have low leverage, high levels of profitability, high recurring revenues that mitigate cyclicality, and are both capital-light business models—all attributes we appreciate as investors. Adobe Inc. (NASDAQ:ADBE) and Autodesk were also two of the top three performers within the Portfolio during 2020.”
6. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 110
NVIDIA Corporation (NASDAQ:NVDA) makes and sells semiconductor products. Hedge funds have been piling into the stock. At the end of the fourth quarter of 2021, 110 hedge funds in the database of Insider Monkey held stakes worth $10.4 billion in NVIDIA Corporation (NASDAQ:NVDA), up from 83 the preceding quarter worth $10 billion.
NVIDIA Corporation (NASDAQ:NVDA) stands to benefit as the demand for chips increases amid rising adoption of EVs, smartphones, and other technologies like blockchain. With supply not likely to meet demand for years, the company will also take advantage of rising chip prices. Mizuho analyst Vijay Rakesh has a Buy rating on the stock with a price target of $345.
Along with Visa Inc. (NYSE:V), Verizon Communications Inc. (NYSE:VZ), and Apple Inc. (NASDAQ:AAPL), NVIDIA Corporation (NASDAQ:NVDA) is one of the stocks that institutional investors have their eye on.
In its Q1 2021 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and NVIDIA Corporation (NASDAQ:NVDA) was one of them. Here is what the fund said:
“NVIDIA Corporation (NASDAQ:NVDA) is the dominant supplier of Graphics Processing Units (GPUs) worldwide. NVIDIA’s GPUs are at the intersection of a number of important computing trends including the movement to the Cloud, artificial intelligence, autonomous vehicles, edge computing, gaming, and more. We previously owned NVIDIA Corporation (NASDAQ:NVDA) and sold it in the third quarter of 2020 as the price to value gap closed and our margin of safety was reduced. As with all our MVP companies, we continued to follow NVIDIA Corporation (NASDAQ:NVDA) closely. Since that time, NVIDIA Corporation (NASDAQ:NVDA) reported excellent results and its value has compounded rapidly. The technology selloff at the beginning of the year negatively affected the stock price while our estimate of NVIDIA’s value per share increased. This happy combination of events created a margin of safety and an opportunity to once again add NVIDIA to the portfolio.”
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Disclosure. None. 10 Best Roth IRA Stocks To Buy in 2022 is originally published on Insider Monkey.
