What Is a Naked Put Options Strategy?

A naked put option, also known as an “uncovered put,” is a risky options strategy in which a trader writes (i.e. sells) a put option with no corresponding short position in the underlying asset. While this strategy allows the trader to collect the option premium up front, in hopes that the underlying asset will rise in value, it carries significant downside loss potential should the price of the underlying asset decline.

Here’s what you need to know about naked put options:

Understanding Naked Put Options

As a refresher, the buyer of a put option has the right, but not the obligation, to sell an underlying security at a specific price. On the flip side, the seller of a put option is obliged to purchase the underlying asset at the strike price if and when the option buyer chooses to exercise.

Writing a naked put means that the trader is betting that the underlying security will rise in value or hold steady. If, at the option’s expiration date, the price of the underlying security is above the strike price, the options contract will expire worthless, allowing the seller to keep the premium. The potential profit of the trade is capped at the initial premium collected.

The risk of a naked put option trade is that the potential losses can be much greater than the premium initially gained. If the price of the underlying security declines below the strike price, the option seller can be forced to take assignment of shares in the underlying security. The options seller would then have to either hold those shares, or sell them in the open market at a loss (since they were obligated to purchase them at the strike price).

Recommended: Buying Options vs. Stocks: Trading Differences to Know

Requirements for Trading Naked Put Options

Investors have to clear some hurdles before being able to engage in a naked put transaction.

Typically, that begins with getting cleared for margin trading by their broker or investment trading firm. A margin account allows an investor to be extended credit from their trading firm in order to actually sell a naked put.

There are two main requirements to be approved for a margin account in order to trade naked put options.

•   The investor must demonstrate the financial assets to cover any portfolio trading losses.

•   The investor must declare they understand the risks inherent when investing in derivative trading, including naked put options.

Selling Naked Puts

A trader initiates a naked put by selling (writing) a put option without an accompanying short position in the underlying asset.

From the start of the trade until the option expires, the investor keeps a close eye on the underlying security, hoping it rises in value, which would create a profit for them. If the underlying security loses value, the investor may have to buy the underlying security to cover the position, in the event that the buyer of the put option chooses to exercise.

With a naked put option, the maximum profit is limited to the premium collected up front, and is obtained if the underlying security’s price closes either at or above the option contract’s strike price at the expiration date. If the underlying security loses value, or worse, the value of the underlying security plummets to $0, the financial loss can be substantial.

In real world terms, however, the naked put options seller would see the underlying security falling in value and would likely step in and buy back the options contract in advance of any further decline in the security’s share price.

Naked Versus Covered Puts

We’ve mentioned a few times so far that in a naked put, the trader has no corresponding short position in the underlying asset. To understand why that is important, we need to talk about the difference between covered puts and naked puts.

A covered put means the put option writer has a short position in the underlying stock. As a reminder, a short position means that the investor has borrowed shares of a security and sold them on the open market, with the plan of buying them back at a lower price.

This changes the dynamics of the trade, compared with a naked (uncovered) put. If the price of the underlying security declines, losses incurred on the put option will be offset by gains on the short position. However, the risk instead is that the price of the underlying security could move significantly upward, incurring losses on the underlying short position.

Recommended: The Risks and Rewards of Naked Options

Example of a Naked Put Option

Here’s an example of how trading a naked put can work:

XYZ stock is trading at $50 per share. Alice, a qualified investor, opts to sell a put option expiring in 30 days with a strike price of $50 for a premium of $4. Typically, when trading equity options, a single contract controls 100 shares – so the total premium, her initial gain, is $400. If the price of XYZ is above $50 after 30 days, the option would expire worthless, and Alice would keep the entire $400 premium.

To look at the downside scenario, suppose the price of XYZ falls to $40. In this case, Alice would be required to buy shares in XYZ at $50 (the strike price), but the market value of those shares is only $40. She can sell them on the open market, but will incur a loss of $10 per share. Her loss on the sale is $1,000 (100 x $10), but is offset by the premium gained on the sale of the option, bringing her net loss to $600. Alternatively, Alice could choose not to sell the shares, but hold them instead, in the hope that they will appreciate in value.

There’s also a break-even point in this trade that investors should understand. Imagine that XYZ stock slides from $50 to $46 per share over the next 30 days. In this case, Alice loses $400 ($4 per share) after buying the shares at $50 and selling them at $46, which is offset by the $400 gained on the premium.

The maximum potential loss in any naked put option sale occurs if XYZ’s stock price goes to $0. In this instance, the loss would be $5,000 ($50 per share x 100 shares), offset by the $400 premium for a net loss of $4,600. Practically speaking, a trader would likely repurchase the option and close the trade before the stock falls too significantly. This can depend on a trader’s risk tolerance, and the stop-loss setting on the trade.

The Takeaway

The big risk of a naked put option trade is that the potential losses can be much greater than the premium initially gained, while the maximum profit is limited to the premium collected up front. The seller of an uncovered put thinks the underlying asset will rise in value or hold steady.

Like most options trading strategies, the complexity of naked options trading and the associated risks make it a strategy that’s typically best for experienced traders. There are plenty of less risky ways for beginner investors to start building a portfolio. One way to do just that is by opening a brokerage account on the SoFi Invest trading platform. Using the SoFi app, you can select company stocks, exchange-traded funds and fractional shares to build your portfolio, or you can opt for the automated features which build a portfolio on your behalf.

Photo credit: iStock/damircudic


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
SOIN1021450

Source: sofi.com

Stock Market Today: Health Insurers Lead Another Slide in Stocks

Investors didn’t get a full reprieve from yesterday’s heavy selling, but they were at least allowed to catch their breath in a calmer Thursday session that saw the major indexes finish modestly lower.

The first unemployment-benefits data of the new year was a tad disappointing, with the Labor Department reporting 207,000 initial claims for the week ending Jan. 1, higher than estimates for 195,000.

Treasury yields also continued to rise, with the 10-year touching 1.75% from 1.68% yesterday; that helped lift the financial sector (+1.5%), primarily regional bank companies such as Fifth Third Bancorp (FITB, +4.2%) and PNC Financial Services (PNC, +3.9%).

Heading in the other direction were health insurers, which tumbled as a group after Humana (HUM, -19.4%) drastically lowered its membership-growth expectations for Medicare Advantage products, to 150,000 to 200,000 members from 325,000 to 375,000 previously. Names including UnitedHealth Group (UNH, -4.1%), Cigna (CI, -3.8%) and Anthem (ANTM, -4.1%) fell in sympathy.

The indexes were far less rowdy. The Dow Jones Industrial Average led the decline, off 0.5% to 36,236, while the S&P 500 (-0.1% to 4,696) and Nasdaq Composite (-0.1% to 15,080) also slipped again.

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stock chart for 010622stock chart for 010622

Other news in the stock market today:

  • The small-cap Russell 2000 was up 0.6% to 2,206.
  • Gold futures plunged 2% to end at $1,789.20 an ounce after Wednesday’s minutes from the latest Federal Open Market Committee (FOMC) meeting suggested the central bank could hike interest rates sooner than anticipated.
  • Bitcoin dropped yet again, by 1.8% to $43,217.10, amid unrest in Kazakhstan, which is actually the world’s second-largest source of bitcoin mining. That mining was disrupted as Kazakh President Kassym-Jomart Tokayev ordered the national telecom provider to shut down internet service, taking numerous miners offline. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
  • Bed Bath & Beyond (BBBY) stock jumped 8.0%, even after the home goods retailer reported dismal fiscal third-quarter results. Over the three-month period, BBBY recorded an adjusted per-share loss of 25 cents versus analysts’ consensus estimate for the company to breakeven on a per-share basis. On the top line, Bed Bath & Beyond brought in $1.88 billion, falling short of the $1.95 billion analysts’ were expecting. Pouring salt on the proverbial wound, same-store sales fell 10% year-over-year and the retailer lowered its full-year forecast to account for continued supply-chain headwinds.
  • MGM Resorts International (MGM) improved by 3.0% after Credit Suisse analysts Benjamin Chaiken and Sarah Murray named the casino stock a “top pick” for 2022. “We see upside to MGM based on accelerating trends in Vegas, a more simplified operating structure that should aid valuation, an attractive capital structure (net cash position), upside to 2023 estimates and improving investor sentiment,” they wrote in a note. With today’s pop, MGM stock is now up more than 46% on a 12-month basis.

A Big Year for Energy Ahead?

Tops today, though, were energy stocks (+2.2%), which were the best S&P sector in 2021 with 53% total returns (price plus dividends) and are again leading the way with a 9.0% gain this year.

Thursday’s gains came on the back of crude oil futures’ 2.1% gain to $79.46 per barrel amid the aforementioned turmoil in major oil producer Kazakhstan, where protests over fuel prices have turned into broader anti-government riots.

It’s a temporary tailwind for a sector most of Wall Street was bullish about heading into 2022 – though the pros had their own, longer-term reason. Specifically, an eventual full reopening of the global economy whenever COVID finally fades is expected to bolster energy demand, which should keep prices on the upward trajectory they traveled throughout 2021.

Today, we provide the last of our 11 annual sector look-aheads – our best energy stocks to buy for 2022. The energy sector often moves in unified fashion, with a rising tide of high commodity prices typically lifting most boats. But a few stocks seem better positioned than others to leverage those prices into shareholder gains in 2022.

Source: kiplinger.com

Stock Market Today: Dow Hits New Record, Nasdaq Takes a Spill

Monday’s fairly broad market rally turned into more of a two-pronged move Tuesday as economic data and rising interest rates sparked gains in cyclical stocks.

The Institute for Supply Management’s purchasing managers’ index reading for December declined 2.3 points to 58.7, well below estimates for 60.0 (anything above 50 represents expansion). However, Barclays economist Jonathan Millar saw in the numbers “significant easing of supply pressures, which is an encouraging sign with disruptions from the omicron variant likely not fully reflected in December.”

Also dragging on stocks was another hike in the 10-year Treasury, whose yield reached 1.68% to close in on highs not seen since November. That helped spark cyclical sectors including financials (+2.6%), energy (+3.5%) and industrials (+2.0%), but it proved a weight on technology (-1.1%) and consumer discretionaries (-0.6%).

“If this all sounds familiar that’s because it is as we’ve seen these bouts of Treasury volatility drive massive rotations within equity markets throughout much of last year,” says Michael Reinking, senior market strategist with the New York Stock Exchange.

As for the major indexes?

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The Dow Jones Industrial Average gained 0.6% to easily rewrite the record books with a close at 36,799, while the S&P 500 Index slightly dipped from yesterday’s new high, to 4,793. The Nasdaq Composite took a dive, however, off 1.3% to 15,622.

stock price chart 010422stock price chart 010422

Other news in the stock market today:

  • The small-cap Russell 2000 jumped 1.1% to 2,268.
  • U.S. crude oil futures rose 1.2% to settle at $76.99 per barrel.
  • Gold futures edged up 0.8% to $1,814.60 per ounce.
  • Bitcoin tacked on 0.8% to $46,256.15. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
  • Ford Motor (F) stock surged 11.8% after the Detroit automaker said it would almost double annual production of its electric F-150 pickup by mid-2023. The company is slated to start taking orders for the pickup tomorrow, Jan. 5.
  • Fellow carmaker General Motors (GM) was another big mover today, jumping 7.5%. This came after GM said dealer inventories totaled 199,662 at the end of the fourth quarter, up 55% from the record low of 128,757 at the end of the third quarter. Nevertheless, CFRA Research analyst Garrett Nelson maintained a Hold rating on GM, saying “we remain skeptical that GM’s new EV offerings will be as successful from a sales perspective as those of competitors such as Ford and Tesla, noting that most models will not be coming to market until 2023 or beyond.”

Buckle Up, We Could Be in for a Bumpy Ride

The early innings of 2022 could be a doozy, especially if you’re overweight a few sectors in particular.

“Given the rising threat of the omicron variant and its potential impact on economic conditions and consumer behavior, the first quarter of 2022 will likely feature the elevated volatility that we saw in the fourth quarter of 2021,” says David Keller, chief market strategist at StockCharts.com.

“The deepest pullback in the S&P 500 [in 2021] was only about 6%, while most years will experience at least one drawdown of over 10%. Higher volatility also suggests a higher probability of deeper corrective phases, so 2022 may return back to the normal routine of at least one steeper drawdown of over 10%. … I would not be surprised if that deeper pullback occurs in the first quarter.”

Two sectors stand out as particularly vulnerable given both their sensitivity to interest-rate moves of late and their sky-high valuations: technology firms and consumer discretionary companies, which are the priciest pockets of the markets based on expected earnings for the year to come.

The latter is number one with a bullet, at a multiple of 31.1 versus 21.1 for the S&P 500. Such high prices can act as a natural handicap against returns, especially in a volatile market, so individual-stock investors will have to be particularly discriminating when evaluating opportunities for the year ahead.

As we near the end of our sector-by-sector look-ahead, check out our latest: the top consumer discretionary picks for 2022.

Source: kiplinger.com

Are Robo-Advisors Worth It? Are They Safe?

When robo-advisors first appeared on the financial scene nearly 15 years ago, they were a novelty. Now these automated portfolios have become a staple offered by numerous financial companies, providing many people with a reliable, cost-efficient way to invest for retirement and other goals — while helping to manage certain market and behavioral risks.

Because robo-advisors typically rely on sophisticated computer algorithms to help investors set up and manage a diversified portfolio, some have questioned whether technology alone can address the range of needs that investors may have over time.

Others note that the lower fees and lower minimum balance requirements typical of most robo-advisors, in addition to the automated features, may provide a much-needed option for new investors. Could a robo-advisor be the right choice for you? It helps to understand how they work in order to weigh the pros and cons.

Is a Robo-Advisor Right for You?

Robo-advisors typically use artificial intelligence to create retirement and financial planning solutions that are tailored to people’s individual needs. Here are some questions to ask yourself, when deciding whether a robo-advisor is right for you.

How Does a Robo-Advisor Pick Investments?

While the term robo-advisor can mean different things depending on the company that offers the service, investors usually fill out an online questionnaire about their financial goals, risk tolerance, and investment time frames. On the back end, a computer algorithm then recommends a portfolio of different securities based on those parameters.

For example one person may be investing for retirement, another saving for the purchase of a home. Depending on each person’s preferences, the robo-advisor generates an asset allocation that aligns with their goals, or suggests portfolio options they can choose from. A portfolio for someone nearing retirement age would typically have a different allocation versus a portfolio for someone in their 20s, for example. Depending on these details, the service might automatically rebalance the portfolio over time, execute trades, and may even conduct tax-loss harvesting.

Can I Choose my Own Investments?

To a limited degree, yes. A robo advisor typically has a range of investments they offer investors. Usually these are low-cost index ETFs, but the offerings can vary from company to company. In most cases, though, your investment options are confined to those available through the robo-advisor.

As the industry grows and becomes increasingly sophisticated, more companies are finding ways to offer investors new options like themed ETFs, stocks from different market sectors, socially responsible investing options, and more.

Who Manages the Portfolio?

Part of the appeal for some investors is that these portfolios are automated and require less hands-on involvement. This may be useful for people who are new to the process of setting up and managing a diversified portfolio, or who don’t feel comfortable doing so on their own. In some cases, a robo-advisor service may also offer a consultation with a live human advisor.

That said, in most cases robo-advisor services are somewhat flexible. Even though you’ve set up an automated plan, it’s still possible to change your asset allocation if your preferences change.

Are There Risks Involved in Using a Robo-Advisor?

Investment always involves some exposure to market risks. But robo-advisors may help manage behavioral risk. Many studies have shown that investors can be impulsive or emotional when making investment choices — often with less than optimal results. By reducing the potential for human error through the use of automation, a robo-advisor may help reduce potential losses.

What do Robo-Advisors Cost?

While there are some robo-advisor services that have higher minimum balance requirements or investment fees, the majority of these services are quite cost efficient. In some cases there are very low or no minimums required to set up a portfolio. And the management fees are typically much lower than what you’d pay for a human advisor. With SoFi’s automated investing feature, for example, you can get started with as little as $1 and you don’t pay any SoFi management fees (although there are typically fees or expense ratios associated with the investments in the portfolio).

Pros and Cons of Robo-Advisors

Hopefully, the questions above have clarified the way a robo-advisor works and shed some light on whether a robo service would be right for you. In addition, there are some pros and cons to keep in mind.

Pros of Robo-Advisors

Saving for Retirement

It’s true that you can use a robo-advisor for almost any short- or long-term goal — you could use a robo-advisor to save for an emergency or another savings goal, for example. But in many ways these services are well-suited to a long-term goal like retirement. Indeed, most robo services offer traditional retirement accounts like regular IRAs, Roth IRAs, SEP IRAs.

The reason a robo-advisor service can be useful for retirement is that the costs might be lower than some other investment options, which can help you keep more of your returns over time. And the automated features, like rebalancing and tax optimization, can offer additional benefits over the years.

Typically, many robo portfolios require you to set up automated deposits. This can also help your portfolio grow over time — and the effect of dollar cost averaging may offer long-term benefits as well.

Diversification

Achieving a well-diversified portfolio can be challenging for some people, research has shown, particularly those who are new to investing. Robo-advisors take the mystery and hassle out of the picture because the algorithm is designed to create a diversified portfolio from the outset; you don’t have to do anything. In addition, the automatic rebalancing feature helps to maintain that diversification over time — which can be an important tool to help minimize risks. (That said, diversification itself is no guarantee that you can avoid potential risks completely.)

Automatic Rebalancing

Similarly, many investors (even those who are experienced) may find the task of rebalancing their portfolio somewhat challenging — or tedious. The automatic rebalancing feature of most robo-advisors takes that chore off your plate as well, so that your portfolio adheres to your desired allocation until you choose to change it.

Tax Optimization

Some robo-advisors offer tax-loss harvesting, where investment losses are applied to gains in order to minimize taxes. This is another investment task that can be difficult for even experienced investors, so having it taken care of can be highly useful — especially when considering the potential cost of taxes over time.

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Cons of Robo-Advisors

Limited Investment Options

Most automated portfolios are similar to a prix fixe menu at a restaurant: With option A, you can get X, Y, Z investment choices. With option B, you can get a different selection, and so on. Typically, the securities available are low-cost, index ETFs. It’s difficult to customize a robo account; even when there are other investments available through the financial company that offers the robo service, you wouldn’t have access to those.

In some cases, investors with higher balances may have access to a greater range of securities and are able to make their portfolios more personalized.

Little or no Personal Advice

The term “robo-advisor” can be misleading, as many have noted: These services don’t involve advice-giving robots. And while some services may allow you to speak to a live professional, they aren’t there to help you make a detailed financial plan, or to answer complex personal questions or dilemmas.

Again, for investors with higher balances, more options may be available.

Performance

Robo-advisors have become commonplace, and they are considered reliable methods of investing, but that doesn’t mean they guarantee higher returns — or any returns. We discuss robo advisor performance in the section below.

Robo-Advisor Industry

Robo-advisors have grown quickly since the first companies launched in 2008-09, during and after the financial crisis. Prior to that, financial advisors and investment firms made use of similar technology to generate investment options for private clients, but robo advisers made these automated portfolios widely available to retail investors. The idea was to democratize the wealth-management industry, by creating a cost-efficient investing alternative to the accounts and products offered by traditional firms.

Today, the robo adviser market is worth about $1 trillion (estimates vary), and there are dozens of robo-advisors available — from independent companies like SoFi Invest®, Betterment, blooom, and Ally, as well as established brokerages like Charles Schwab, Vanguard, T. Rowe Price, and many more.

While these figures are still miniscule compared to the $100 trillion in the global asset-management industry, robo-advisors are seen as potential game-changers that could revolutionize the world of financial advice.

Because they are direct-to-consumer and digital only, robo-advisors are available around the clock, making them more accessible. Their online presence has meant that the clientele of robo-advisors has tended to skew younger.

Also, traditional asset management often have large minimum balance requirements. At the high end, private wealth managers could require minimums of $5 million or more.

The cost of having a human financial advisor can also drive up fees north of 1% annually, versus the 0.25% of assets that robo-advisors typically charge.

How Have Robo-Advisors Performed in the Past?

Like any other type of investment — whether a mutual fund, ETF, stock, or bond — the performance of robo-advisors varies over time, and past performance is no guarantee of future returns.

Research from BackEnd Benchmarking, which publishes the Robo Report, a quarterly report on the robo-advisor industry, analyzed the performance of 30 U.S.-based robo-advisors. As of Sept. 30, 2021, the 4-year total portfolio returns, annualized and based on a 60-40 allocation, ranged from 6.51% to 10.98%. (Data not available for all 30 firms.)

The Takeaway

Despite being relative newcomers in finance, robo-advisors have become an established part of the asset management industry. These automated investment portfolios offer a reliable, cost-efficient investment option for investors who may not have access to accounts with traditional firms.

Robo advisors don’t take the place of human financial advisors, but they can automate certain tasks that are challenging for ordinary or newbie investors: selecting a diversified group of investments that align with an individual’s goals; automatically rebalancing the portfolio over time; using tax-optimization strategies that may help reduce portfolio costs.

Curious to explore whether a robo-advisor is right for you? When you open an account with SoFi Invest®, it’s easy to use the automated investing feature. Even better, SoFi members have complimentary access to financial professionals who can answer any questions you might have.

Check out automated or active investing with SoFi Invest today.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected] Please read the prospectus carefully prior to investing. Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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Source: sofi.com

Dogs of the Dow 2022: 10 Dividend Stocks to Watch

The start of the new year means a fresh chance for yield-seeking investors to get in on one of the easiest market strategies in the book:

The Dogs of the Dow.

Investment manager Michael B. O’Higgins popularized the idea in his 1991 book Beating the Dow. And it doesn’t get much simpler: At the beginning of the year, buy the 10 highest-yielding Dow Jones Industrial Average components in equal amounts. Hold them until the end of the year. Rinse. Repeat.

While the Dogs of the Dow sounds like a dividend strategy, it has its roots in value. O’Higgins’ proposed that firms with high dividends relative to their stock price in the index would be near the bottom of their business cycle and represent bargains compared to components with lower dividend yields.

And why the DJIA? The Dow Jones has long been considered one of the leading stock-market gauges of America’s economy. While the S&P 500 has more components and is more diversified, the Dow still covers most sectors. Not to mention, its components are extremely liquid and there are reams of research available on all 30.

But buyer beware. While the Dogs of the Dow have posted a respectable 8.7% annual total return since 2000, the Dogs have trailed the DJIA in each of the past four years. Analysts have proposed that the shift to growth investing has hurt the strategy’s performance; but with value stocks predicted to regain their mojo, the Dogs could again have their day.

Without further ado, here are the 2022 Dogs of the Dow.

Data is as of Dec. 31, 2021, the date on which the Dogs of the Dow are identified. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Stocks listed in reverse order of yield.

1 of 10

Intel

Intel building signIntel building sign
  • Sector: Technology
  • Market value: $209.5 billion
  • Dividend yield: 2.7%

Oh, how the tables have turned.

A decade ago, Intel (INTC, $51.50) was the leading name in chips, while Advanced Micro Devices (AMD) and Nvidia (NVDA) were promising yet still relatively minor players – combined, the two were worth less than a tenth of Intel by market capitalization.

But Nvidia is now several times Nvidia’s size, and AMD isn’t too far behind Intel’s $210 billion market value. That’s because in recent years, Intel has missed the boat on a variety of fronts. From mobile computing and productions capabilities for faster/smaller chipsets, Intel has stumbled … and its rivals have eaten its lunch.

But while Intel might be down, it’s hardly not out.

Intel’s Alder Lake 12th-generation core processor chips have started to eat away from AMD’s high-end processors, and Intel recently announced the latest line of Alder Lake chips that include what the company says is “the fastest mobile processor. Ever.” The next two years should see its 13th-gen (Raptor Lake) and 14th-gen (Meteor Lake) chips come live.

Intel also could squeeze some value out of Mobileye, the autonomous vehicle-chip stock that it acquired back in 2017. INTC in December announced its intent to spin the company off in an initial public offering (IPO) while maintaining controlling interest – allowing Intel to enjoy both an immediate windfall while still realizing gains as Mobileye grows.

In keeping with the Dogs of the Dow’s value bent, Intel trades at just 14 times the coming year’s earnings estimates, significantly less than both the S&P 500 (21) and technology sector (28). INTC’s 2.7% yield is also much better than what you typically get out of tech shares.

2 of 10

Coca-Cola

Coca-Cola With Coffee can sitting in a pocket of snowCoca-Cola With Coffee can sitting in a pocket of snow
  • Sector: Consumer staples
  • Market value: $255.8 billion
  • Dividend yield: 2.8%

In today’s low-carb and keto-friendly world, sugary soft drinks and sodas are practically verboten. And in recent years, that has largely muted the returns of giant Coca-Cola (KO, $59.21), which has produced roughly half the total returns (price plus dividends) of the S&P 500 over the past half-decade.

But KO is doing a better job of ensuring it has the goods to shift with consumer tastes.

Coca-Cola has spent a few years moving its portfolio into healthier options. That includes teas, milk and sparkling water, among others. It also unveiled new zero-sugar versions of soda brands such as Sprite and Coca-Cola, which fueled about 25% of the Coca-Cola brand’s growth in the third quarter.

KO is also looking toward athletics and fitness fanatics for growth. Back in November, Coca-Cola purchased sports beverage group BodyArmor – which it already had a 15% stake in – for $5.6 billion. This instantly gives it a meaningful presence in the industry. “BodyArmor is currently the #2 sports drink in the category in measured retail channels, growing at about 50% to drive more than $1.4 billion in retail sales,” the company says.

And you don’t get more dependable than Coca-Cola’s dividend, which has been growing uninterrupted for 59 consecutive years. That easily puts it among the longest-tenured Dividend Aristocrats.

3 of 10

3M

Scotch tapeScotch tape
  • Sector: Industrials
  • Market value: 102.4 billion
  • Dividend yield: 3.3%

Unlike most of Wall Street, 3M (MMM, $177.63) was already getting crushed by the time the COVID bear market came around. The U.S.-China trade war and other difficulties were already weighing on the industrial name when COVID cramped demand for many of the company’s products (except its N95 masks and filtering division, of course).

But 2022 could be another year of recovery for 3M.

3M makes more than 60,000 products, from consumer products such as sponges and packing tape to industrial diamond-coated grinding disks and orthodontic supplies. In normal times, this wide product portfolio provides insulation from specific shocks to its various businesses. And it allows 3M to enjoy in numerous facets of a broad economic recovery.

The company grew third-quarter revenues 7.1% year-over-year and generated more than $1.5 billion in free cash flow. 3M is benefiting from continued cost cutting and development programs, as well as from selling chronically underperforming business lines.

3M’s forward P/E of 16 makes it one of the more expensive 2022 Dogs of the Dow, and yet it still trades for much cheaper than the S&P 500 and industrial sector (20) alike.

4 of 10

Amgen

Amgen needleAmgen needle
  • Sector: Healthcare
  • Market value: $126.7 billion
  • Dividend yield: 3.5%

Patent expirations are a hurdle most pharmaceutical and biotechnology companies have to face, and that’s no different for established biotech Amgen (AMGN, $224.97). Top drugs such as Enbrel, Neulasta and Otezla will fall off the patent cliff in coming years.

The good news? The earliest drug in that cohort to fall off patent won’t do so until 2025. And often, U.S. drug manufacturers can kick the can down the road by making minor changes to drugs or adding more indications for the therapy. Not to mention, expirations go both ways – AbbVie’s (ABBV) blockbuster drug Humira is set to lose patent protection in the U.S. in 2023, and Amgen has already gained approval to sell Amjevita, a biosimilar form of the drug.

Another big reason AMGN shareholders shouldn’t panic is its potential-packed pipeline. The biotechnology firm has more than 20 drugs in Phase 2 or 3 trials. And recently, the FDA approved Amgen severe-asthma medication Tezspire, a potential blockbuster drug.

Nearer-term, another reason to like Amgen is its dividend. Namely, it’ll be 10% bigger in 2022, at $1.94 per share quarterly, the company announced in December.

5 of 10

Merck

Merck buildingMerck building
  • Sector: Healthcare
  • Market value: $193.6 billion
  • Dividend yield: 3.6%

Merck (MRK, $76.64) has been doing a lot of evolving in recent years. It has gone on an impressive pipeline-buying spree, which continued in late November with its $11.5 billion buy of Acceleron. And Merck also recently spun off its legacy generic drug and off-patent medicines into a separate company, Organon (OGN).

The resulting Merck is one of the top growth-oriented drug producers in the world.

Sales of oncology blockbuster drug Keytruda jumped 22% year-over-year during Q3, to $4.5 billion. Some analysts believe Keytruda will soon be the world’s best-selling drug, overtaking AbbVie’s Humira. That’s in part because Merck intends to seek approval for other indications of the drug. But Merck has other major drugs in the tank, including Gardasil, whose sales grew 68% to $2 billion in Q3. And its pipeline includes dozens of products in Phase 2 and 3 trials.

A low forward P/E of around 10, and a yield well above 3%, make MRK a model example of the income and value found in the Dogs of the Dow.

6 of 10

Walgreens Boots Alliance

Walgreens pharmacyWalgreens pharmacy
  • Sector: Consumer staples
  • Market value: $45.2 billion
  • Dividend yield: 3.7%

Walgreens Boots Alliance (WBA, $52.16) wasn’t the COVID winner you might have thought. COVID prompted a shift in the company’s sales mix to lower-margin items, and it dragged heavily on foot traffic in the company’s Boots U.K. stores.

So, like many other retailers, an escape from the pandemic should help Walgreens, which used COVID as an opportunity to cut nearly $2 billion in costs from its operations.

Partnerships will be essential too. For instance, Walgreens has been opening branded primary-care clinics with VillageMD, who staffs these locations with physicians, allowing them to cater to more than ear infections and sniffles. Walgreens plans to open 1,000 of these clinics at its stores by 2027.

Also in play is the potential divestiture of its Boots business; several reports in December said Walgreens was mulling the move.

With foot traffic on the rebound and new avenues for growth opening up, WBA could be a productive Dow Dog. A forward P/E of around 10 doesn’t hurt, either.

7 of 10

Chevron

A Chevron gas stationA Chevron gas station
  • Sector: Energy
  • Market value: $226.2 billion
  • Dividend yield: 4.6%

COVID was downright miserable for the energy sector – even integrated oil-and-gas giants such as Chevron (CVX, $117.35).

However, while numerous companies closed, and many more were forced to cut jobs, slash capital expenditures and pull back on their dividends, Chevron managed to keep its dividend running and even used an all-stock deal to acquire Noble Energy.

Chevron’s acquisition of Noble at fire-sale prices boosted its overall presence in low-cost fields in the Permian Basin, allowing the company to better leverage a rebound in energy prices, which came in spades in 2021.

Energy stocks of all sorts went bananas in 2021, making it the S&P 500’s top sector. Chevron returned 46% amid a complete rebound in its operations. For instance, its third quarter saw Chevron earn $6.1 billion versus the $207 million it lost in the year-ago quarter.

However, despite its massive 2021 move, CVX stock yet again finds itself among the Dogs of the Dow.

Chevron’s 4.6% current yield isn’t as generous as the 6% or so it offered at this same time last year, but it’s still one of the top yields in the Dow. Meanwhile, it’s value-priced at just 12 times earnings estimates.

8 of 10

International Business Machines

IBM buildingIBM building
  • Sector: Technology
  • Market value: $119.9 billion
  • Dividend yield: 4.9%

International Business Machines (IBM, $133.66) has been nothing short of a disappointment in recent years.

Big Blue has struggled to remain relevant in the age of cloud computing while rivals chipped away market share. At one point, the firm recorded 22 consecutive quarters of declining revenue, then restarted that streak shortly after breaking it. Even including dividends, IBM shares returned just 1% between 2017 and 2021.

But IBM might finally be getting itself together.

Its 2019 purchases of open-source software firm Red Hat boosted the company’s operations. Fast-forward to 2021, and the company cut loose some dead weight, spinning off its legacy IT infrastructure services as Kyndryl (KD).

A now leaner, meaner IBM is focused once again on growth.

We saw signs of this in the company’s third quarter, where overall cloud revenues grew 14% year-over-year. It’ll still be a while before IBM can report its post-separation numbers, but analysts are generally expecting IBM to start heading in the right direction once again.

Better still: IBM didn’t give away any of the dividend game with Kyndryl. International Business Machines remains a Dividend Aristocrat whose 4.9% yield is among the best of 2022’s Dogs of the Dow.

9 of 10

Verizon Communications

Verizon storeVerizon store
  • Sector: Communication services
  • Market value: $215.1 billion
  • Dividend yield: 4.9%

Verizon (VZ, $51.96) spent the last few years trying to build out a communications and media empire. Wireless communication has become a commodity; there isn’t much difference between carriers, plans or offerings at this point. The U.S. market is saturated. The major carriers can’t rely on their legacy businesses for growth.

But Verizon’s ventures, which included buying Yahoo! And other media properties, simply didn’t pan out. Several write-offs later, and VZ is just getting back to basics: improving its giant network and providing services that utilize said network.

The 5G transformation is a major tailwind for Verizon. It’s not just consumer devices; smart vehicles, the Internet of Things and other applications will be a big driver for its network. Also, Verizon has started to transition toward more enterprise customers, which includes fleet management software and applications to data security. These should also provide a runway for growth.

A forward P/E under 10 and a nearly 5% dividend, meanwhile, provide some of the best features of the Dogs of the Dow.

10 of 10

Dow

Dow buildingDow building
  • Sector: Materials
  • Market value: $42.0 billion
  • Dividend yield: 4.9%

Dow has had a wild and transformative few years that saw it spin off assets before merging with rival DuPont (DD), then the chemical giant split into three separate firms. The remaining Dow contains the materials sciences chemicals, including adhesives, polyurethanes, silicones, resins and waxes, among others.

Like most other materials stocks, Dow struggled right alongside the broader economy during the COVID recession. For instance, during Q3 2020, the company lost 4 cents per share on $9.7 billion in sales. By Q3 2021, Dow had recovered considerably, posting $2.23 per share in earnings on $14.8 billion in revenues.

The omicron and future variants could throw more hurdles at the Dow recovery, but in general, a growing global economy should mean continued growth in demand for Dow’s products.

You can buy into that recovery on the cheap through Dow. Shares trade at a svelte nine times future earnings and yield nearly 5% at today’s prices. That’s roughly four times the income you’ll pull from the broader market, and at a much better valuation. A fair dividend payout ratio of 45% of earnings leaves Dow ample room to raise that payout further.

Aaron Levitt was long AMGN and MRK as of this writing.

Source: kiplinger.com

The 12 Best Tech Stocks to Buy for 2022

A multiyear bull market in the technology sector could be on shaky ground in 2022. So while in most years, investors might succeed with a broad-indexed approach to the sector, it might pay to be a stock picker in the space this year.

A smart place to start: our 12 best tech stocks for 2022.

Technology faces an uphill climb this year for several reasons. Most notably, at 27.9 times the coming year’s earnings estimates, tech is the second-priciest sector in the market, behind only consumer discretionary (31.1). And that’s just the sector average – it’s not uncommon to see tech stocks trading at triple-digit forward price-to-earnings (P/E) ratios.

Also noteworthy are the actions of the Federal Reserve. With inflation hitting levels not seen since the early 1980s, the U.S. central bank has taken a hawkish tone. Easy monetary policy is likely to tighten up over the coming year; the Fed itself anticipates three rate hikes to its benchmark rate in 2022, which would certainly cut into the sector’s fat margins.

But if you can stand a little heat, technology still looks like one of the best places to generate excess returns.

“Valuations still look expensive relative to the S&P 500,” say RBC Capital Markets strategists in their 2022 outlook. However, “Tech ranks the best among all sectors on our quality metrics, ranking at or near the top for all factors that we evaluated.”

Read on as we unveil our 12 best tech stocks to buy for 2022. Every stock here is a member of the Russell 3000, which covers most of the investable U.S. market. Moreover, each stock here receives a consensus Buy rating, according to analysts surveyed by S&P Global Market Intelligence. This list covers a wide range of approaches, from trillion-dollar tech behemoths to recent initial public offerings (IPOs) looking to disrupt established technologies.

Data is as of Jan. 2. Analyst opinions and consensus ratings from S&P Global Market Intelligence. Stocks are scored on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Scores between 3.5 and 2.5 translate into Hold recommendations. Scores higher than 3.5 equate to Sell ratings, while scores equal to or below 2.5 mean that analysts, on average, rate a stock as being a Buy. The lower the score, the stronger the recommendation. Stocks listed in reverse order of analysts’ consensus recommendation.

1 of 12

International Business Machines

IBM buildingIBM building
  • Market value: $119.9 billion
  • Dividend yield: 4.9%
  • Analysts’ opinions: 4 Strong Buy, 1 Buy, 12 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 2.47 (Buy)

The past decade has not been kind to shareholders of International Business Machines (IBM, $133.66). The stock price has declined from the $180s to the $130s – meanwhile, the broader market has posted a gain of nearly 280%.

IBM’s biggest missteps were missing the early opportunities in the cloud and fumbling its efforts with artificial intelligence (AI). But investors shouldn’t through in the towel. The company has been making smarter moves of late that should boost the fortunes of this legacy tech name.

Among them: IBM recently spun off Kyndryl Holdings (KD), which was its information technology outsourcing division. The business had long lagged because of low margins and intense competition.

Also, CEO Arvind Krishna, installed in April 2020, has focused on becoming the leader in the hybrid cloud business, which he believes is worth more than $1 trillion worldwide.

IBM is positioned nicely here. The company has a deep portfolio of infrastructure software that can manage public and private clouds as well as traditional datacenters. The $34 billion acquisition of Red Hat is key to this this strategy. The business is the largest provider of open-source software for the enterprise, with applications for virtualization, integration, process automation and more.

As the recent AWS outage showed, there are considerable risks relying on one public cloud platform. Businesses simply need high IT stability. Private clouds and data centers may also be better options for certain applications because of security.

IBM reported more than 3,500 hybrid-cloud customers in October, up from 3,200 in July.

“The more favorable business mix resulting from nurturing growth markets and spinning off Kyndryl is expected to drive strong free cash flow generation, even on a substantially lower revenue base,” says Argus Research analyst Jim Kelleher, who rates shares at Buy.

The stock is also dirt-cheap, at a forward price-to-earnings (P/E) ratio of just 11 versus nearly 28 for the technology sector. IBM also is a rarity among 2022’s best tech stocks in that it’s a Dividend Aristocrat – one that has raised its payout for 26 consecutive years and currently yields nearly 5%.

2 of 12

Dropbox

concept art for Dropboxconcept art for Dropbox
  • Market value: $9.4 billion
  • Dividend yield: N/A
  • Analysts’ opinion: 2 Strong Buy, 3 Buy, 4 Hold, 1 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 2.40 (Buy)

Dropbox (DBX, $24.54) came public in March 2018 to a lot of investor excitement. The file-hosting company was growing quickly and seemed primed to disrupt the storage industry.

Returns, unfortunately, have been meager (indeed, negative!) since then amid competition from companies large and small, including mega-caps such as Alphabet (GOOGL) and Microsoft (MSFT). But the prospects for Dropbox finally appear to be improving.

Dropbox has been expanding its services, including the likes of digital signature program HelloSign, as well as DocSend, which allows for the secure sharing of business documents. DBX also has been aggressively building out offerings for remote workers, including video, collaboration and feedback.

Dropbox has scale to work with, boasting a massive user base of more than 700 million registered users. That means even a small increase in average revenue per user (ARPU) can really move the needle.

Another thing that could move the needle on DBX shares is a little activist agitation. Investor Elliott Management reportedly snapped up a double-digit stake in DBX last summer, and the investment firm has built a history of solid returns in the tech world.

Wall Street analysts are also getting upbeat on Dropbox stock. For example, Jefferies has a price target of $40, which compares to the current stock price of $24. The analysts believe there are multiple drivers, such as the addition of new features, M&A opportunities and the move to provide industry-specific applications.

3 of 12

JFrog

concept of cloud servicesconcept of cloud services
  • Market value: $2.9 billion
  • Dividend yield: N/A
  • Analysts’ opinion: 3 Strong Buy, 2 Buy, 6 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 2.27 (Buy)

In 2011, Internet pioneer and venture capitalist Marc Andreessen wrote an article in the Wall Street Journal called “Why Software Is Eating The World” that certainly looks prescient now. Software has led to the disruption of numerous industries, and companies from virtually every sector have been forced to adopt software in several ways just to keep the lights on.

However, this has translated into a growing demand for systems to manage all that software. That means dealing with global teams, different platforms, real-time changes and other hurdles.

Enter JFrog (FROG, $29.70). This company has built a platform that manages the development, deployment and monitoring of software, whether it’s in an on-premise or cloud environment.

JFrog’s go-to-market strategy has traditionally been organic, relying on adoption from developers. It has delivered growth this way, but it did make it difficult to land larger enterprise deals.

Lately, however, the company has bolstered its direct sales force, in part helped by the influx of funds from its 2020 IPO. JFrog ramped up spending on sales and marketing to $24.3 million in the latest quarter, up from $14.8 million in the year-ago quarter. However, during this period, the number of customers with annual recurring revenues (ARR) greater than $100,000 spiked by 49% to 466.

“We believe the company is well positioned to sustain 30%-plus revenue growth in coming years as it leverages its unique position within the DevSecOps workflow,” say Stifel analysts, who upgraded the stock to Buy from Hold in December. “Building off its core Artifactory binary management solution, the company has assembled a growing suite of solutions to help customers more effectively and efficiently build, manage, distribute and secure their respective applications.”

And Stifel’s price target of $45 per share would translate into a 52% return across 2022. If achieved, that would easily put JFrog among 2022’s best tech stocks to buy.

4 of 12

Cisco Systems

Cisco Systems buildingCisco Systems building
  • Market value: $268.0 billion
  • Dividend yield: 2.3%
  • Analysts’ opinion: 8 Strong Buy, 6 Buy, 13 Hold, 1 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 2.25 (Buy)

Wall Street didn’t like what it saw out of Cisco Systems (CSCO, $63.37) when it reported earnings in November, selling shares by about 8% in one day. Among the concerns were supply-chain issues, which hampered growth.

But CSCO has rebounded nicely since then, and it’s nicely positioned to be among the best tech stocks of 2022.

Supply-chain issues, of course, imply that the issue isn’t demand – it’s supply. This shouldn’t be a surprise. 5G rollouts, cloud computing, security and more all require networking infrastructure, and that’s what Cisco delivers.

What also makes CSCO attractive is the recent transformation of its underlying business. Cisco has focused more on subscription revenues; now, about 30% of sales come from software, such as its security offerings and WebEx platform. The result is higher growth and more predictability.

“Cisco is successfully shifting its mix away from over-reliance on hardware and toward an integrated software, hardware, and services solution,” says Argus Research’s Kelleher, who rates the stock at Buy. “On that basis, Cisco has been able to maintain high pretax margins while continuing to generate strong free cash flows. We believe that category leader Cisco represents … a core long-term holding.”

Meanwhile, a forward P/E of 17 looks reasonable compared to both the sector and its long-term growth prospects. CSCO stock also offers up an above-average yield of 2.3%.

5 of 12

8×8

video conferencevideo conference
  • Market value: $1.9 billion
  • Dividend yield: N/A
  • Analysts’ opinion: 6 Strong Buy, 2 Buy, 6 Hold, 0 Sell, 1 Strong Sell
  • Analysts’ consensus recommendation: 2.20 (Buy)

Zoom (ZM) gets much of the attention when it comes to videoconferencing, but other players are worth considering – and some offer up much cheaper valuations.

For instance, 8×8 (EGHT, $16.76) trades at a mere three times sales versus about 14 for Zoom.

Founded in 1987, 8X8 initially developed hardware systems for videoconferences. But the company has since broadened its product line to software, such as Voice over Internet Protocol (VoIP), video and messaging. 8X8 has traditionally catered to smaller customers, but it has gone upmarket over the past few years. It currently boasts 871 customers with ARR of more than $100,000, compared to 670 customers at the end of 2020.

Also bullish is 8×8’s December announcement that it had spent $250 million to purchase Fuze, a top provider of cloud-based communications for the enterprise. Fuze is expected to add about $130 million in revenues, bring the paid customer base up to 2.4 million from 2 million, and bring enterprise customers up to 1,200 from 900.

William Blair analysts are among those in the Buy camp given “the strengthening growth profile, improving margins and increased penetration of the global enterprise cloud communications market.”

6 of 12

NortonLifeLock

keyboard lockkeyboard lock
  • Market value: $15.2 billion
  • Dividend yield: 1.9%
  • Analysts’ opinion: 3 Strong Buy, 2 Buy, 2 Hold, 1 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 2.13 (Buy)

In 2019, security software developer Symantec sold its enterprise security business to Broadcom (AVGO) for $10.7 billion. The remaining entity, which would focus on consumer cybersecurity, changed its name to NortonLifeLock (NLOK, $25.98).

Unfortunately for shareholders, the move hasn’t resulted in much upside since then. But this could change soon thanks to its August move to buy Europe-based consumer cybersecurity software provider Avast for more than $8 billion.

On a combined basis, NortonLifeLock will have more than 500 million users and generate about $3.5 billion in revenues. The deal should result in about $280 million in annual gross cost synergies. And better still: The company expects the acquisition to be double-digit accretive to earnings per share (EPS) within the first full year after the deal closes.

Global consumer cybersecurity is an underpenetrated market, with NortonLifeLock analysis saying that less than 5% of the world’s 5 billion internet users have paid subscriptions.

NLOK doesn’t have a large analyst following, but its overall rating puts it among the best tech stocks to buy for 2022. Among the bulls is Argus Research, which has the stock at Buy with a $32 price target over the next 12 months.

“The company has expanded its product line from the venerable Norton security firewall business into personal identity protection with the LifeLock acquisition, and is now expanding further in this area with new add-on and standalone products. Avast will add personal privacy-related solutions to the mix,” says Argus Research analyst Joseph Bonner. “At the same time, NLOK has been converting from a transactional perpetual license model to a typically more profitable recurring fee-based model with an initial ‘freemium’ offer. It has also begun to invest in both direct-to-consumer marketing and indirect sales through institutional partners like AAR.”

7 of 12

Pros Holdings

future artificial intelligence robotfuture artificial intelligence robot
  • Market value: $1.5 billion
  • Dividend yield: N/A
  • Analysts’ opinion: 4 Strong Buy, 1 Buy, 4 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 2.00 (Buy)

Founded in 1985, Pros Holdings (PRO, $34.49) is one of the early players in the AI market, though at the time of its founding, the technology was typically referred to just as “analytics.” The company developed pioneering systems that helped airlines with revenue management – systems that required sophisticated algorithms and huge sums of data.

Pros has since continued to build its platform and expanded into other industry verticals, including autos, B2B services, food, chemicals, energy and healthcare.

Acquisitions have been helpful in Pros’ expansion. Its latest deal, announced near the end of November, was for digital offer marketing pioneer EveryMundo, which helps its customers grow their reach and better engage customers.

Pros, which generated $247 million in Q3 2021 revenue, estimates the global market (which it calls underpenetrated) at $30 billion. And that global market could grow given the potential for AI to transform just about any industry.

PRO shares have struggled over the past few years, thanks in part to a COVID-related hit to its travel business. But a potential rebound could make it one of the best tech stocks for 2022.

“We believe Pros is well positioned now for FY22 and beyond as ARR growth returns to the mid- to upper-teens, driven by an improving mix of Travel-related ARR,” says Needham analyst Scott Berg, who rates the stock at Buy.

8 of 12

Alteryx

A picture of a data center. A picture of a data center.
  • Market value: $4.1 billion
  • Dividend yield: N/A
  • Analysts’ opinion: 7 Strong Buy, 3 Buy, 7 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 2.00 (Buy)

When it comes to AI, sophisticated algorithms typically get most of the attention. The irony? These technologies – which include machine learning and deep learning capabilities – are fairly standard. Since many have come from the academic world, they are often freely available as open-source.

Interestingly, a main differentiator for AI is the data. It often takes a lot of work to clean and structure it, and if not done right, the results can fall way off the mark.

This is why companies use offerings from companies such as Alteryx (AYX, $60.50). This software automates many of the manual data processes and helps track models. This can save time and money – and given the challenges of hiring data scientists, companies don’t want these vital personnel wasting their talent on tedious functions, no matter how vital.

Alteryx has posted meager financial results of late, but this could be set to turn around in 2022. One reason for this is the expected early 2022 launch of the Designer Cloud, which should help boost growth. AYX also has taken steps to improve its sales force, including offering better incentives.

“We are positive on the long-term strategic value of Alteryx’s platform, its large and growing [total addressable market], expanding partner leverage and increased focus on G2K opportunities,” says Oppenheimer, which rates the stock at Outperform (equivalent of Buy) and gives it a $105 price target, implying 73% upside from current levels.

Needham agrees, calling AYX “Buy-rated for patient, long-term oriented investors.” But even 2022 should be fruitful, given its analysts’ 12-month price target of $97 (60% upside).

9 of 12

Bentley Systems

person on laptopperson on laptop
  • Market value: $13.7 billion
  • Dividend yield: 0.3%
  • Analysts’ opinion: 4 Strong Buy, 1 Buy, 3 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.88 (Buy)

Bentley Systems (BSY, $48.33), a software company that develops sophisticated modeling and simulation software for engineers, was founded in 1984 but only came public in September 2020.

And it did so in a pleasantly different way. The founders actually gave all of the proceeds from the offering to its 4,000-plus employees. Not only was it an amazing gesture, but it showed that Bentley Systems didn’t need the money. It already generates a substantial amount of free cash flow (the cash remaining after a company has paid its expenses, interest on debt, taxes and long-term investments to grow its business), which was expected to hit $260 million in 2021.

Bentley’s technology helps with a myriad of projects, whether for bridges, rail, transit, building, utilities and mining – just to name a few.

The future looks bright. The Biden administration’s massive infrastructure bill will help provide additional demand within the U.S. But BSY should also see upside from increased infrastructure investment in Europe and Asia.

As one typically expects from high-potential tech stocks, Bentley’s shares aren’t cheap, trading at a whopping 16 times sales. But given an average price target of $69 per share – implying more than 40% price growth over the next 12 months or so – analysts clearly believe the company deserves to trade at a premium.

Mizuho analyst Matthew Broome, who has a Buy rating and $74 price target on shares, says the company “is well-positioned to deliver greater penetration within the vast global market for constructed infrastructure. Furthermore, we believe its market dynamics are extremely attractive, which should underpin profitable long-term growth.”

10 of 12

Micron Technology

semiconductorssemiconductors
  • Market value: $105.2 billion
  • Dividend yield: 0.2%
  • Analysts’ opinion: 22 Strong Buy, 6 Buy, 6 Hold, 1 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.60 (Buy)

Traditionally, memory chip companies go through extreme boom-bust cycles. That has resulted in stomach-churning stock volatility that has dissuaded many would-be investors.

But this has moderated somewhat over the past decade. You can thank powerful megatrends in AI, the Internet of Things, edge computing, 5G and more that has powered enormous demand for memory chips that many have referred to as a “supercycle.”

Great news for Micron Technology (MU, $93.15), a global leader in the development of sophisticated DRAM and NAND memory chips. These and other storage solutions represent some 30% of the semiconductor market.

A key competitive advantage for Micron is its massive infrastructure, which includes manufacturing plants and research-and-development centers across 13 countries. It also sports a portfolio of more than 47,000 patents.

Micron is hardly done innovating, either. The company expects to shell out more than $150 billion over the next decade to bolster its manufacturing and R&D capabilities.

Deutsche Bank is among the outfits that are bullish on Micron, with recent supply-chain checks showing “robust demand especially for server DRAM with enterprise IT spending continuing to recover and hyperscale customers planning to invest aggressively for growth.”

Add to that a reasonable forward price-to-earnings ratio of less than 10, and MU could be one of the best tech stocks to buy in 2022.

11 of 12

Avalara

man with pen and laptopman with pen and laptop
  • Market value: $11.2 billion
  • Dividend yield: N/A
  • Analysts’ opinion: 7 Strong Buy, 7 Buy, 0 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.50 (Strong Buy)

Taxes can be boring and tedious, but just about every business has to deal with them. That makes taxes a massive industry – one that constantly changes over time as federal, state and local tax laws change.

Good news for Avalara (AVLR, $129.11), a developer of software to help businesses with tax compliance.

Avalara currently has more than 30,000 customers. Its extensive product line helps with sales and use taxes, value-added tax, excise taxes, goods and service tax, custom duties and indirect taxes, among other things. The Avalara platform processes billions of transactions every year, and files more than 1 million returns annually.

Growth is still running at a brisk pace, with most-recent-quarter revenues jumping 42% to $181 million. The company also is in a good financial position – it generated $11.4 million in operating cash last quarter, and total cash stands at $1.5 billion versus $960 million in long-term debt.

Avalara has bolstered some of its offerings via acquisitions. For instance, in October, AVLR announced it had acquired CrowdReason, which provides cloud software that helps with property taxes. Earlier in the month, Avalara said it bought Track1099, which helps companies manage, file and deliver IRS forms.

The stock has lost roughly a third of its value since early November, bringing shares to much more palatable levels. Mizuho, for instance, has a $220 price target on AVLR, implying 70% upside over the next 12 months alone. They are bullish on Avalara’s strategy of “incorporating international geographies, up/down-market penetration, deeper relationships with marketplaces and ecommerce partners, and strategic M&A to drive long-term revenue growth.”

12 of 12

Microsoft

Microsoft buildingMicrosoft building
  • Market value: $2.5 trillion
  • Dividend yield: 0.7%
  • Analysts’ opinion: 30 Strong Buy, 12 Buy, 2 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.36 (Strong Buy)

Microsoft (MSFT, $336.32) almost feels like it’s back to its glory days of the 1980s and 1990s. Certainly, it can seem to do no wrong in analysts’ eyes, who rate it as one of the absolute best tech stocks to buy as we enter 2022.

Even with its massive scale, Microsoft continues to churn out strong revenue growth. In its latest quarter, for instance, MSFT sales grew by 22% year-over-year to $45.3 billion, resulting in a 48% spike in net income to $20.5 billion.

Since CEO Satya Nadella took the CEO spot in 2014, he has smartly focused Microsoft on capturing the cloud. He has built Azure into the second-largest cloud platform (only behind Amazon’s AWS, and has retooled legacy products such as Office, which is now heavily cloud-based.

Better still: The cloud opportunity is still in the earlier innings. Research firm IDC forecasts that cloud spending will climb from $706.6 billion in 2021 to $1.3 trillion by 2025. One of the drivers is the new reality of remote work, which requires substantial investments in new technologies of all sorts. The cloud, however, helps lower costs and allows companies to leverage artificial intelligence.

Microsoft has a few other potential growth drivers. It owns LinkedIn, the largest social network for professionals at about 800 million users generating more than $10 billion in revenues. And it also boasts the Xbox franchise, which could be key in leveraging new trends such as the metaverse.

“At 35 times our 2022 free cash flow estimate, Microsoft shares are in our view still reasonably valued given the revenue/EPS visibility and strong Azure growth,” say UBS analysts Karl Keirstead and Taylor McGinnis, who rate MSFT stock at Buy.

Source: kiplinger.com

Commodities Trading Guide for Beginners

Investing in commodities — e.g. agricultural products, energy, and metals — can be profitable if you understand how the commodity markets work. Commodities trading is generally viewed as high risk, since the commodities markets can fluctuate dramatically owing to factors that are difficult to foresee (like weather) but influence supply and demand.

Nonetheless, commodity trading can be useful for diversification because commodities tend to have a low or even a negative correlation with asset classes like stocks and bonds.

Commodities fall firmly in the category of alternative investments, and thus they may be better suited to some investors than others. Getting familiar with commodity trading basics can help investors manage risk vs. reward.

What Is Commodities Trading?

Commodity trading simply means buying and selling a commodity on the open market. Commodities are raw materials that have a tangible economic value. For example, agricultural commodities include products like soybeans, wheat, and cotton. These, along with gold, silver, and other precious metals, are examples of physical commodities.

There are different ways commodity trading can work. Investing in commodities can involve trading futures, options trading, or investing in commodity-related stocks, exchange-traded funds (ETFs), mutual funds, or index funds. Different investments offer different strategies, risks, and potential costs that investors need to weigh before deciding how to invest in commodities.

Unique Traits of the Commodities Market

The commodities market is unique in that market prices are driven largely by supply and demand, less by market forces or events in the news. When supply for a particular commodity such as soybeans is low — perhaps owing to a drought — and demand for it is high, that typically results in upward price movements.

And when there’s an oversupply of a commodity such as oil, for example, and low demand owing to a warmer winter in some areas, that might send oil prices down.

Likewise, global economic development and technological innovations can cause a sudden shift in the demand for certain commodities like steel or gas or even certain agricultural products like sugar.

Thus, investing in commodities can be riskier because they’re susceptible to volatility based on factors that can be hard to anticipate. For example, a change in weather patterns can impact crop yields, or sudden demand for a new consumer product can drive up the price of a certain metal required to make that product.

Even a relatively stable commodity such as gold can be affected by rising or falling interest rates, or changes in the value of the U.S. dollar.

In the case of any commodity, it’s important to remember that you’re often dealing with tangible, raw materials that typically don’t behave the way other investments or markets tend to.

Commodity vs Stock Trading

Take stocks vs. commodities. The main difference in stock trading vs commodity trading lies in what’s being traded. When trading stocks, you’re trading ownership shares in a particular company. If you’re trading commodities, you’re trading the physical goods that those companies may use.

There’s also a difference in where you trade commodities vs. stocks. Stocks are traded on a stock exchange, such as the New York Stock Exchange (NYSE) or Nasdaq. Commodities and commodities futures are traded on a commodities exchange, such as the New York Mercantile Exchange (NYME) or the Chicago Mercantile Exchange (CME).

That said, and we’ll explore this more later in this guide, it’s possible to invest in commodities via certain stocks in companies that are active in those industries.

Types of Commodities

Commodities are grouped together as an asset class but there are different types of commodities you may choose to invest in. There are two main categories of commodities: Hard commodities and soft commodities. Hard commodities are typically extracted from natural resources while soft commodities are grown or produced.

Agricultural Commodities

Agricultural commodities are soft commodities that are produced by farmers. Examples of agricultural commodities include rice, wheat, barley, oats, oranges, coffee beans, cotton, sugar, and cocoa. Lumber can also be included in the agricultural commodities category.

Needless to say, this sector is heavily dependent on seasonal changes, weather patterns, and climate conditions. Other factors may also come into play, like a virus that impacts cattle or pork. Population growth or decline in a certain area can likewise influence investment opportunities, if demand for certain products rises or falls.

Livestock and Meat Commodities

Livestock and meat are given their own category in the commodity market. Examples of livestock and meat commodities include pork bellies, live cattle, poultry, live hogs, and feeder cattle. These are also considered soft commodities.

You may not think that seasonal factors or weather patterns could affect this market, but livestock and the steady production of meat requires the steady consumption of feed, typically based on corn or grain. Thus, this is another sector that can be vulnerable in unexpected ways.

Energy Commodities

Energy commodities are hard commodities. Examples of energy commodities include crude oil, natural gas, heating oil or propane, and products manufactured from petroleum, such as gasoline.

Here, investors need to be aware of certain economic and political factors that could influence oil and gas production, like a change in policy from OPEC (the Organization of the Petroleum Exporting Countries). New technology that supports alternative or green energy sources can also have a big impact on commodity prices in the energy sector.

Precious Metals and Industrial Metals

Metals commodities are also hard commodities. Types of metal commodities include precious metals such as gold, silver, and platinum. Industrial metals such as steel, copper, zinc, iron, and lead would also fit into this category.

Investors should be aware of factors like inflation, which might push people to buy precious metals as a hedge.

How to Invest in Commodities

If you’re interested in how to trade commodities, there are different ways to go about it. It’s important to understand the risk involved, as well as your objectives. You can use that as a guideline for determining how much of your portfolio to dedicate to commodity trading, and which of the following strategies to consider.

Recommended: What Is Asset Allocation?

Trading Stocks in Commodities

If you’re already familiar with stock trading, purchasing shares of companies that have a commodities connection could be the simplest way to start investing.

For example, if you’re interested in gaining exposure to agricultural commodities or livestock and meat commodities, you may buy shares in companies that belong to the biotech, pesticide, or meat production industries.

Or, you might consider purchasing oil stocks or mining stocks if you’re more interested in the energy stocks and precious or industrial metals commodities markets.

Trading commodities stocks is the same as trading shares of any other stock. The difference is that you’re specifically targeting companies that are related to the commodities markets in some way. This requires understanding both the potential of the company, as well as the potential impact of fluctuations in the underlying commodity.

You can trade commodities stocks on margin for even more purchasing power. This means borrowing money from your brokerage to trade, which you must repay. This could result in bigger profits, though a drop in stock prices could trigger a margin call.

Futures Trading in Commodities

A futures contract represents an agreement to buy or sell a certain commodity at a specific price at a future date. The producers of raw materials make commodities futures contracts available for trade to investors.

So, for example, an orange grower might sell a futures contract agreeing to sell a certain amount of their crop for a set price. A company that sells orange juice could then buy that contract to purchase those oranges for production at that price.

This type of futures trading involves the exchange of physical commodities or raw materials. For the everyday investor, futures trading in commodities typically doesn’t mean you plan to take delivery of two tons of coffee beans or 4,000 bushels of corn. Instead, you buy a futures contract with the intention of selling it before it expires.

Futures trading in commodities is speculative, as investors are making educated guesses about which way a commodity’s price will move at some point in the future. Similar to trading commodities stocks, commodities futures can also be traded on margin. But again, this could mean taking more risk if the price of a commodity doesn’t move the way you expect it to.

Trading ETFs in Commodities

Commodity ETFs (or exchange-traded funds) can simplify commodities trading. When you purchase a commodity ETF you’re buying a basket of securities. These can target a picture type of commodities, such as metals or energy, or offer exposure to a broad cross-section of the commodities market.

A commodity ETF can offer simplified diversification though it’s important to understand what you own. For example, a commodities ETF that includes options or commodities futures contracts may carry a higher degree of risk compared to an ETF that includes commodities companies, such as oil and gas companies, or food producers.

Recommended: How to Trade ETFs

Investing in Mutual and Index Funds in Commodities

Mutual funds and index funds offer another entry point to commodities investing. Like ETFs, mutual funds and index funds can allow you to own a basket of commodities securities for easier diversification. But actively managed mutual funds offer investors access to very different strategies compared with index funds.

Actively managed funds follow an active management strategy, typically led by a portfolio manager who selects individual securities for the fund. So investing in a commodities mutual fund that’s focused on water or corn, for example, could give you exposure to different companies that build technologies or equipment related to water sustainability or corn production.

By contrast, index mutual funds are passive, and simply mirror the performance of a market index.

Even though these funds allow you to invest in a portfolio of different securities, remember that commodities mutual funds and index funds are still speculative, so it’s important to understand the risk profile of the fund’s underlying holdings.

Commodity Pools

A commodity pool is a private pool of money contributed by multiple investors for the purpose of speculating in futures trading, swaps, or options trading. A commodity pool operator (CPO) is the gatekeeper: The CPO is responsible for soliciting investors to join the pool and managing the money that’s invested.

Trading through a commodity pool could give you more purchasing power since multiple investors contribute funds. Investors share in both the profits and the losses, so your ability to make money this way can hinge on the skills and expertise of the CPO. For that reason, it’s important to do the appropriate due diligence. Most CPOs should be registered with the National Futures Association (NFA). You can check a CPO’s registration status and background using the NFA website.

Advantages and Disadvantages of Commodity Trading

Investing in commodities has its pros and cons like anything else, and they’re not necessarily right for every investor. If you’ve never traded commodities before it’s important to understand what’s good — and potentially not so good — about this market.

Advantages of Commodity Trading

Commodities can add diversification to a portfolio which can help with risk management. Since commodities have low correlation to the price movements of traditional asset classes like stocks and bonds they may be more insulated from the stock volatility that can affect those markets.

Supply and demand, not market conditions, drive commodities prices which can help make them resilient throughout a changing business cycle.

Trading commodities can also help investors hedge against rising inflation. Commodity prices and inflation move together. So if consumer prices are rising commodity prices follow suit. If you invest in commodities, that can help your returns keep pace with inflation so there’s less erosion of your purchasing power.

Disadvantages of Commodity Trading

The biggest downside associated with commodities trading is that it’s high risk. Changes in supply and demand can dramatically affect pricing in the commodity market which can directly impact your returns. That means commodities that only seem to go up and up in price can also come crashing back down in a relatively short time frame.

There is also a risk inherent to commodities trading, which is the possibility of ending up with a delivery of the physical commodity itself if you don’t close out the position. You could also be on the hook to sell the commodity.

Aside from that, commodities don’t offer any benefits in terms of dividend or interest payments. While you could generate dividend income with stocks or interest income from bonds, your ability to make money with commodities is based solely on buying them low and selling high.

The Takeaway

Commodities trading could be lucrative but it’s important to understand what kind of risk it entails. Commodities trading is a high-risk strategy so it may work better for investors who have a greater comfort with risk, versus those who are more conservative. Thinking through your risk tolerance, risk capacity, and timeline for investing can help you decide whether it makes sense to invest in commodities.

Fortunately, there are a number of ways to invest in commodities, including futures and options (which are a bit more complex), as well as stocks, ETFs, mutual and index funds — securities that may be more familiar. To explore some ways you might invest in commodities, open an online brokerage account with SoFi Invest®. And remember: SoFi members have access to complimentary financial advice from a professional.

Photo credit: iStock/FlamingoImages


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Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected] Please read the prospectus carefully prior to investing. Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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Source: sofi.com