In this article, we discuss 5 best cyclical stocks to buy in 2022. If you want to see more stocks in this selection, check out 10 Best Cyclical Stocks To Buy in 2022.
5. AutoZone, Inc. (NYSE:AZO)
Number of Hedge Fund Holders: 42
AutoZone, Inc. (NYSE:AZO) is a Tennessee-based company that manufactures and sells automotive replacement parts and accessories. On October 4, AutoZone, Inc. (NYSE:AZO) announced that its board authorized an additional $2.5 billion to its current share repurchase program. As of August 27, AutoZone, Inc. (NYSE:AZO) had more than 6,000 stores in the United States, around 700 in Mexico, and 72 in Brazil. Since initiating the share repurchase program in 1998, the company’s board has authorized $33.7 billion in buybacks. It is one of the best cyclical stocks to buy in 2022.
Argus analyst Taylor Conrad on September 27 raised the price target on AutoZone, Inc. (NYSE:AZO) to $2,330 from $2,210 and reaffirmed a Buy rating on the shares. The company’s earnings have recovered from their pandemic lows and have now outperformed Wall Street estimates for nine consistent quarters, the analyst told investors in a research note. She added that there are opportunities for further growth as the average age of vehicles increases and AutoZone, Inc. (NYSE:AZO) wins market share in the commercial segment. The analyst also lifted her FY23 EPS estimates for AutoZone, Inc. (NYSE:AZO) to $127.50 from $126.00.
Among the hedge funds tracked by Insider Monkey, Arrowstreet Capital held a notable position in AutoZone, Inc. (NYSE:AZO), comprising 149,781 shares worth about $322 million. Overall, 42 hedge funds were bullish on the stock at the end of June 2022, up from 38 funds in the last quarter.
Here is what Carillon Tower Advisers specifically said about AutoZone, Inc. (NYSE:AZO) in its Q2 2022 investor letter:
“AutoZone, Inc. (NYSE:AZO) sells automotive replacement parts and accessories. The company reported another solid quarterly update that highlighted particularly robust growth in its commercial segment, market share gains, and stable gross margins. Additionally, investors have appreciated the company’s historically stable business model that is positioned to perform well in periods of economic stress.”
4. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 53
Lowe’s Companies, Inc. (NYSE:LOW), the American home improvement retailer, is one of the best cyclical stocks to buy in 2022. On August 26, Lowe’s Companies, Inc. (NYSE:LOW) declared a $1.05 per share quarterly dividend, in line with previous. The dividend is payable on November 2, to shareholders of record on October 19. The dividend yield on October 5 came in at 2.13%.
On October 3, Jefferies analyst Jonathan Matuszewski raised the price target on Lowe’s Companies, Inc. (NYSE:LOW) to $259 from $255 and reiterated a Buy rating on the shares, noting that home maintenance and emergency repair offer “underappreciated downside cushion” if discretionary home improvement outlays slow.
Among the hedge funds tracked by Insider Monkey, Lowe’s Companies, Inc. (NYSE:LOW) was part of 53 public stock portfolios at the end of June 2022, compared to 65 in the prior quarter. Bill Ackman’s Pershing Square is the largest stakeholder of the company, with 10.20 million shares worth $1.8 billion.
Here is what Pershing Square Holdings specifically said about Lowe’s Companies, Inc. (NYSE:LOW) in its Q2 2022 investor letter:
“Lowe’s Companies, Inc. (NYSE:LOW)’s is a high-quality business with significant long-term earnings growth potential underpinned by a superb management team that is successfully executing a multi-faceted business transformation.
COVID-19 was a transformational event for the US housing market, causing homeowners to invest significantly in their homes as they shifted nearly all their daily activities to the home environment, including work, school, and leisure. The increased use of the home during COVID, in turn, increased the need for repair, maintenance and remodel activity, which significantly benefited Lowe’s same-store sales. As consumers return to spending more time and money on out-of-the home activities the near-term demand for certain Do-It-Yourself (“DIY”) categories has decreased. Moderation in DIY demand combined with increased mortgage rates and decreased housing affordability has caused many market participants to become concerned that the home improvement industry may give up a significant part of their COVID pandemic sales gains.
While we expect that there will be some near-term volatility and continued moderation of DIY demand, growth remains strong for projects requiring professional installation (the “Pro” business) due to a substantial backlog of projects undertaken during COVID, which should support industry growth in the near-term. In addition, we believe the medium[1]term growth outlook for the home improvement industry remains strong as demand is likely to normalize at a materially higher level as compared to the pre-COVID era. For the decade prior to COVID, home improvement industry sales were notably depressed relative to their long-term averages as a percentage of overall consumer spend and GDP and have only now returned to their longer-term historical levels. Moreover, we believe COVID has permanently renewed consumers’ focus, appreciation, and utilization of their homes, which combined with higher home equity values, strong consumer balance sheets, low levels of home inventory for sale and an aging housing stock that requires an increasing level of maintenance, will likely result in a structurally higher level of ongoing home industry spending in the future. In the most recent quarter demand strengthened throughout the quarter as DIY consumers returned from summer vacations and focused on less seasonal home improvement projects…” (Click here to read the full text)
3. Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 55
Next on our list of cyclical stocks is Starbucks Corporation (NASDAQ:SBUX), the American coffee retailer. On September 28, Starbucks Corporation (NASDAQ:SBUX) declared a $0.53 per share quarterly dividend, an 8.2% increase from its prior dividend of $0.49. The dividend is distributable on November 25, to shareholders of record on November 11. Starbucks Corporation (NASDAQ:SBUX) delivers a dividend yield of 2.21% as of October 5.
Stephens analyst Joshua Long on September 22 initiated coverage of Starbucks Corporation (NASDAQ:SBUX) with an Equal Weight rating and a $91 price target. While he is optimistic on the stock’s long-term investment story, he prefers to remain neutral as short-term constraints in North America and China affect the company’s traffic and top line, the analyst told investors. In the long-term, Starbucks Corporation (NASDAQ:SBUX)’s brand strength, scale, rewards program, and high coffee consumption positions the company for growth.
According to Insider Monkey’s data, 55 hedge funds were bullish on Starbucks Corporation (NASDAQ:SBUX) at the end of Q2 2022, compared to 58 funds in the last quarter. Ray Dalio’s Bridgewater Associates is a significant position holder in the company, with 3.2 million shares valued at $247.7 million.
Here is what Matrix Asset Advisors specifically said about Starbucks Corporation (NASDAQ:SBUX) in its Q2 2022 investor letter:
“Starbucks Corporation (NASDAQ:SBUX) is a premiere global coffee brand supported by over 32,600 stores across the world. The firm has a long history of beverage innovation and strong employee/barista relations with the firm paying above-market wages and benefits. Starbucks has a strong balance sheet and finances. The company generates steady and consistent cash flow, selling millions of cups of premium coffee every day. The company’s share price declined in part due to its large business in China which was largely shut down due to Covid restrictions and because of rising commodity and labor costs. We think the shares are attractively priced for a company that should grow 10% plus per year with a dividend yield of 2.6% at our average cost.”
2. Airbnb, Inc. (NASDAQ:ABNB)
Number of Hedge Fund Holders: 57
Airbnb, Inc. (NASDAQ:ABNB) is a California-based company that operates a platform offering lodging and travel experiences worldwide. The company exceeded the bottom line and management indicated the quarter was its most profitable on record. The management also approved a $2 billion share repurchase program. Airbnb, Inc. (NASDAQ:ABNB) is one of the best cyclical stocks to invest in.
On October 4, Bernstein analyst Richard Clarke initiated coverage of Airbnb, Inc. (NASDAQ:ABNB) with an Outperform rating and a $143 price target. The analyst sees the vacation rental market as “far larger” than most estimate at $150 billion, and believes Airbnb, Inc. (NASDAQ:ABNB) will gain 37% share. He thinks Airbnb, Inc. (NASDAQ:ABNB) can maintain compound annual sales growth at over 15% and the stock’s valuation is “no longer an obstacle”.
According to Insider Monkey’s data, 57 hedge funds were long Airbnb, Inc. (NASDAQ:ABNB) at the end of June 2022, compared to 66 funds in the last quarter. Jim Simons’ Renaissance Technologies is the leading position holder in the company, with 5.60 million shares worth over $499 million.
Here is what Polen Capital specifically said about Airbnb, Inc. (NASDAQ:ABNB) in its Q2 2022 investor letter:
“Airbnb, Inc. (NASDAQ:ABNB) was one of our largest detractors from performance in the second quarter. Airbnb is the clear market leader in private rental bookings globally, according to market research firm Euromonitor. The business is currently firing on all cylinders, with revenue and earnings growth well above our expectations and long-term estimates. It would be easy to say that it is because as the world reopens, people are traveling for the first time in two years, providing a short-term benefit to the company. But, Airbnb also grew quickly in 2021 when people were still hesitant to travel and preferred staying close to home. The company’s growth in 2022 is not an easy comparison like it is for online travel agencies (which are more hotel-oriented), airlines, and hotels. In fact, Airbnb’s business has outpaced the hotel industry growth by more than 1,250 basis points per year since 2019, showing far more resilience than hotels and online travel agencies.
Airbnb didn’t invent the private rental market, but it developed a better offering and helped it scale with robust network effects and a system of trust protecting travelers and hosts alike. It has diligently removed friction from the marketplace to catalyze demand.
The business model has very high incremental profit margins. When the company went public only a year and a half ago, it had pretax profit margins on a non-GAAP basis of approximately 5% by our calculations. This year, those margins should approach 30%. In addition, the company has generated approximately $3 billion in free cash flow over the last 12 months. The runway for growth in private rental is very long, especially considering that hybrid work will likely remain for the long-term, allowing for more business/leisure trips that work better in Airbnbs than hotels, in our view…” (Click here to read full text)
1. Hilton Worldwide Holdings Inc. (NYSE:HLT)
Number of Hedge Fund Holders: 60
Hilton Worldwide Holdings Inc. (NYSE:HLT) is an American hospitality company that owns, leases, develops, and franchises hotels and resorts. The company outperformed earnings estimates for the second quarter of 2022 and expects diluted EPS to fall between $4.11 and $4.36 for the full-year 2022, well above the $4.04 forecast by analysts. Hilton Worldwide Holdings Inc. (NYSE:HLT) is one of the best cyclical stocks to buy.
On September 15, Berenberg analyst Stuart Gordon upgraded Hilton Worldwide Holdings Inc. (NYSE:HLT) to Buy from Hold with a price target of $152, up from $140. The analyst noted the fast recovery in lodging has yet to be reflected in the shares. “Even allowing for the threat of a recession moving into 2023, the shape of the recovery means that we expect strong RevPAR increases in 2023 across the sector,” the analyst told investors in a bullish thesis.
According to Insider Monkey’s second quarter database, 60 hedge funds were long Hilton Worldwide Holdings Inc. (NYSE:HLT), up from 52 funds in the earlier quarter. Boykin Curry’s Eagle Capital Management is a prominent position holder in the company, with 6.45 million shares worth close to $720 million.
Here is what Pershing Square Holdings specifically said about Hilton Worldwide Holdings Inc. (NYSE:HLT) in its Q2 2022 investor letter:
“Hilton Worldwide Holdings Inc. (NYSE:HLT) is a high-quality, asset-light, high-margin business with significant long-term growth potential, led by a superb management team. The unforeseen arrival of the COVID-19 pandemic catalyzed a rapid and near-complete standstill in global travel, with RevPAR (the industry metric for same-store sales at a given hotel) down roughly 90% at the nadir of the pandemic. We increased our investment in Hilton during the pandemic as we believed the economic dislocation from COVID-19 would prove to be transient and that industry projections regarding the timeline for recovery were too pessimistic.
From the moment the pandemic began, Hilton’s management team took decisive actions to ensure the company not only managed through what it knew would be a challenging period, but also positioned the company to generate improved margins, cash flows, and investment returns once the business recovered. In hindsight, Hilton’s experience with COVID-19 – the 100-year proverbial flood – affirmed the company’s unique high-quality, asset light, high-margin business model, and reinforced our belief that Hilton deserves a premium valuation.
While Hilton entered 2022 impacted by the Omicron variant, results have vastly improved throughout the year as COVID-19 has evolved towards a more endemic virus, and consumer behavior has adapted accordingly. In recent months, Hilton’s system-wide RevPAR has surpassed 2019 levels and continues to improve. Recent strength has been led by domestic leisure travel occasions as consumer spending continues to shift from goods to services. …” (Click here to read the full text)
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