Top 10 Stocks for Q2 2022 – Part 1

Challenging Environment

The US Stock markets had a poor start to the year, as they grappled with factors such as, surging inflation, supply chain disruptions, geopolitical fears, a boom in energy and commodity prices and more. Furthermore, the US Federal Reserve (Fed) made its first rate hike since 2018 in March, concluded its asset purchases program and expects to begin reducing the balance sheet soon.

This is not a supportive environment for stock markets and even more so, for the tech sector and growth stocks, with the NAS100 (Nasdaq) having erased around 9% of its value during the first quarter of 2022. However, it was not only US stock markets and corporations that were negatively affected from such factors, since stock markets in Europe and pretty much around the world also struggled.

In this backdrop and as the second quarter gets underway and the new earnings season approaches fast, we take a look – in a two part article - at some stocks to watch from the US, the UK, Germany, France, Australia and China.

Ford

Ford is the company founded by Henry Ford and incorporated as the Ford Motor Company in 1903. Only a few years later, in 1908, it introduced the Model T, which sold 15 million units by the time production stopped in 1927. It is headquartered in Dearborn, Michigan and became a publicly traded company in 1956. ^[1]

Mr Jim Farley was named CEO in 2020 and his Ford+ plan has pushed the company forward on multiple fronts, most importantly on electrification, on which it aims to spend $30+ billion by 2025 ^[2] – a plan that seems to be turning Ford into a Wall Street darling.

This March, the company upped its EV game, announcing the separation of its electric vehicle (EV) and internal combustion businesses, into two distinct units that will be named "Ford Model e" and "Ford Blue" respectively. It also upgraded its electrification target, now expecting EVs to represent 50% of global volume by 2030. ^[3]

A key part to this, is the upcoming F-150 Lighting – the electric version of America's best-selling truck, which is expected for delivery during the second quarter, if things go as planned. As per January's announcement, Ford had nearly 200,000 reservations and the unprecedented demand led the firm to increase production to 150,000 vehicles per year. ^[4]

Despite Ford's progress, the automotive landscape is not easy to navigate, given supply chain strains, chip shortages, high oil prices, surging Inflation and rising interest rates in US and elsewhere. These factors affect prices and clients' ability to finance their purchases.

F.us registered a mindboggling rally during the past year, in excess of 135%, making it a stock to watch in 2022 as well. The new year has started on the back foot with losses of more than 15% during the first quarter, despite January's multiyear high (25.93), as the above factors weighed on the stock.

BMW

Bayerishe Motoren Werke (BMW) is a leading German manufacturer of premium automobiles and motorbikes, which was established in 1916. The Group had nearly 120,000 employees at the end of 2021, assembly facilities in 15 countries and a global sales network. ^[5]

Group Revenues rose to € 111.239 billion in 2021, marking a healthy growth of 12.4% year-over-year, with a Net Profit of 12.463 billion, which constituted and eye-watering 223.1% surge year-over-year. ^[6]

The Group delivered 2,521,514 vehicles in 2021, 8.4% more than it did in the prior year, as well as 194,261 motorcycles. The BMW brand itself, delivered 2,213,790 cars, which amounted to a 9.1% year-over-year growth, surpassing rival Merecedes-Benz in the premium segment, which had delivered 2,093,476 units. ^[7]

BMW is pushing on the EV front, expecting to have two million fully electric vehicles on the roads by 2025, while those vehicles could make up 50% of its global sales earlier than 2030.

Despite solid results, the automotive industry continue to face challenges from chip shortages, supply chain disruptions, high inflation and prospects of higher interest rates. The company projects 2022 deliveries to be on par with the past year and profit before taxes to see significant growth.

BMW.de comes from a solid fourth quarter and in January it extended the advance to the highest levels since December 2015, but during the first quarter of the year it lost more than 10%.

Amazon

Amazon (AMZN) is a US multinational technology giant, with its business spanning from e-commerce to the increasingly important cloud computing, to streaming services and more. It was founded in 1994 by Jeff Bezos, who stepped down last year as CEO, succeeded by Andy Jassy. ^[8]

In February, the firm reported solid financial results for the fourth quart of 2021, with total Revenues rising to $137.4 billion, while its Cloud business (AWS) contributed $17.78 billion – a 40% year-over-year growth. Amazon disclosed for the first time its Advertising Revenue, which generated $9.716 billion in Q4 2021, up 32% year-over-year, highlighting its healthy ad inflows. ^[9]

Despite those impressive metrics, the firm's forward guidance was disappointing, since it projects total Revenues of $112 - $117 billion and Operating Income of just $3 - $6 billion for the first quarter of the current year – both lower than the Q4 2021 figures.

In an SEC filing in March, the Nasdaq listed company disclosed that the Board of Directors had approved a 20-for-1 stock split, pending shareholder approval. Trading on the adjusted basis is expected to begin within the current quarter, on June 6. The Board has also authorized a $10 billion repurchase program. ^[10]

Amazon along with other tech companies has come under scrutiny from US lawmakers and authorities in recent years, over their market position - among other things - and in general the regulatory environment may create further challenges. The new head of the US Federal Trade Commission (FTC), Ms Khan who was sworn in last year, is a known critic of Big-Tech, having published an article titled "Amazon's Antitrust Paradox", a few years back. ^[11]

AMZN.us had somewhat of a mixed fourth quarter, failing to set new all-time highs during November's advance. The new year started on the back foot for the stock, which did not avoid a negative first quarter, despite the February-March rebound.

Deliveroo

Deliveroo is a UK-based online delivery platform that connects millions of customers, more than 160,000 restaurants and grocers and 180,000+ riders, operating in more than 10 countries. It was founded in 2013 and went public on March 31 2021, in one of the most anticipated IPOs of this year. ^[12]

In March, the firm reported strong growth for 2021, as its Gross Transaction Value (GTV) climbed 70% year-over-year, to £6.631 billion, although the biggest growth had come in the first half. It also registered a similar increase in Orders, which amounted to 301 million, while average Monthly Active Consumers increased by 64%, to 7.5 million ^[13]

However, Deliveroo's Adjusted EBITDA Loss widened to £131.4 million, from £10.1 million, although the company said that this partly reflected investments to drive future growth. It now expects to break even at some point between the second half of 2023 and the first half of 2024.

The delivery firm's near-term guidance disappointed, as it sees GTV growth of just 15%-25% for 2022, due to uncertainties especially in Europe, such as inflation and post-Covid consumer behavior. The pandemic lockdowns boosted the gig-economy, but as the world moves away from Covid-19 restrictions, such firms may find it hard to continue growing.

Another area of concern is the regulatory environment, as many countries have been trying to determine whether gig-workers should be classified as self-employed (as delivery and ride-hailing platforms generally want) or as employees, which provides a greater level of protection. Deliveroo pulled out of Spain late-last year, after changes in employment legislation.

The stock has had only a handful of positive months and registered a poor fourth quarter, while during the second quarter, it saw its value nearly halving.

Chart Source: www.tradingview.com

Xiaomi

Xiaomi is a Chinese consumer electronics company and one of the world's leading smartphone makers, with product presence in more than 100 countries. It was founded in 2010 and listed in the Main Board of the Hong Kong Stock Exchange in 2018. ^[14]

It seems to be a trend for electronics firms to test themselves in the electric vehicle (EV) arena and Xiaomi is no exception. During the second half of 2021, it created the Xiaomi EV Company Limited with a registered capital of RMB 10 billion ^[15]. Xiaomi, expects mass production to be achieved in the first half of 2024, according to the latest update. ^[16]

As per Canalys' latest research published in February, Xiaomi kept the No3 place in the global smartphone market last year, with 14% market share and 191.2 million shipments. Samsung and Apple occupied the first and second places respectively ^[17]. In mainland China it also holds the third place, with 50.5 million devices shipped, behind vivo and OPPO – and a 15% market share which is equal to that of Apple (AAPL). ^[18]

The Chinese company announced its financial results for the fourth quarter of 2021 in late-March ^[16], having reported a 21.4% Revenue growth year-over-year, to RMB 85.575 billion . The Smartphones segment was the largest contributor (59%), registering a 18.4% year-over -year growth.

XIAO.hk had a very bad second half of 2021, avoiding monthly losses only in October, doing so narrowly. The current year has started in similar fashion, with an around 26% slide in the first quarter.