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Investing Specialists

Weekly Wrap: Undervalued Stocks for 2022, Outlook for the Market and Economy, and Your 2022 Financial Calendars

And also Tesla.

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Outlook for the Market and Economy in 2022

After experiencing yet another year of stellar returns from U.S. stocks in 2021, investors face a good deal of uncertainty heading into 2022. Valuations appear stretched. Economic growth is slowing. Inflation is higher than it's been in decades. And the Federal Reserve is tapering its asset purchase program and plans to raise interest rates. 

What can investors expect from the economy and stock market this year?

"Despite a slowdown in GDP growth in the third quarter of 2021, along with rising concerns around inflation and the new omicron coronavirus variant, we think the U.S. economic recovery is far from finished," notes senior analyst Preston Caldwell. Our equity research team's gross domestic product forecast for 2022 is 3.9%. Moreover, the team doesn't view inflation as a threat to the recovery; it projects inflation will fall to 3.0% this year and average 2.2% over 2022-25.

What About Stocks?

"Although the market is broadly overvalued, we see upside opportunity for investors in the value category and small-cap stocks, both of which should benefit from continued economic prosperity," says Morningstar's chief U.S. market strategist Dave Sekera. He also notes that if inflation persists, wide-moat stocks are a good place to be, because these companies usually have better pricing power and therefore a better chance of maintaining their profit margins. And be sure to read Dave's outlook for 2022 to find out what market sector offers the most upside potential today based on our valuation metrics.

(Those Smart Investor readers interested in-depth recaps of the year in the markets, funds, and stocks can check out our comprehensive special report, "Morningstar's Take on 2021.")

33 Undervalued Stocks for 2022

At the start of each year, I pull together an Our Picks article that focuses on the three top ideas from our analysts across 11 different sectors. This year's installment, "33 Undervalued Stocks for 2022," includes some names familiar to regular readers of the column, because these stocks have popped up in recent Our Picks articles--names like Hanesbrands (HBI), Polaris (PII), Merck (MRK), and Salesforce.com (CRM), for instance. Other stocks on the list, however, we've talked less about, like Macerich (MAC) and Lithium Americas (LAC).

What floors me is that, although our analysts think the market is about 5% overvalued heading into the new year, several stocks on this week's picks list are trading at half of what our analysts think they're worth, representing tremendous upside potential in what many consider an otherwise frothy market. Perhaps it's time to back up the truck--or dip a toe in, depending on your investing temperament.

Also, I want to plug the outlook pieces that our sector directors and strategists write each quarter. They're insightful reads. Find out whether the worst is yet to come for utilities, why the healthcare sector has lagged the broader market, and whether we think the recent carnage in communication services stocks will persist, among other sector insights.

Stock of the Week: Tesla (TSLA)

Early this week, Tesla reported strong fourth-quarter and full-year vehicle delivery numbers, boosting its total number of vehicles delivered by 87% versus 2020. After adjusting for these better-than-expected numbers and an increased 2022 forecast, analyst Seth Goldstein reported that Morningstar raised its fair value estimate on Tesla to $700 from $680. That means shares are only 64% overvalued as of this writing, according to our metrics. Seth, of course, agrees with just about everyone else that Tesla is a disruptor, but it's a terribly overpriced disruptor today.

Your 2022 Financial Calendars

Morningstar's director of personal finance and retirement planning Christine Benz kicks off each new year with practical content focused on helping investors accomplish key financial jobs. Your 2022 Financial To-Do List is Christine's month-by-month calendar that breaks down some daunting yet important money tasks; she makes them more manageable to check off your to-do list. Christine and I also talk about each month's tasks in videos that publish near the start of each month; you can watch our conversation about January's financial to-dos

Happy New Year to all Smart Investor readers! I hope it's a healthy, happy, and successful one for all.

--Susan Dziubinski

Editor's Picks

4 Charts on Apple's $3 Trillion Market Cap
As Apple (AAPL) nears this milestone, what does it look like to be a $3 trillion stock?

What Lower Withdrawal Rates Mean for Retirement Savings
You might need to save a lot more.

Your Financial To-Do List for January 2022
Start the new year off right by tackling some important financial tasks.

11 Charts Examining the Racial Wealth Gap
What data tells us about the disparities along racial lines for income, savings, and overall financial well-being.

Your 2022 Tax Fact Sheet and Calendar
Bookmark this guide to stay abreast of the tax-related dates and data that should be on your radar this year.

The Year in U.S. Stock Funds
Value is back.

Portfolio Planning and Personal Finance With Christine Benz

Your 2022 Financial To-Do List
As the new year dawns, here's your plan to get financially fit, one job at a time.

Mutual Funds and Exchange-Traded Funds

The Year in ETFs
It was a record year for ETFs in 2021. Will 2022 be more of the same?

The Year in Funds
From flows to performance and more, tied up with a bow.

ETFs Cap Off Another Record Year of Flows With a Stellar December
2021 was a year of milestones for exchange-traded funds.

It Can Pay to Be Choosy When Investing in China
The world's second-largest economy has a bigger influence than ever in many investors' portfolios.

Stocks

Will Lockheed Martin Stock Recover in 2022?
Shares have struggled lately, but Morningstar’s analyst sees three big opportunities to drive growth.

8 Charts on 2021 Market Performance
U.S. stocks post third year of double-digit gains but bonds falter.

Is Tesla's Disruption Worth the Price?
Here's Morningstar analyst Seth Goldstein's take on the world's largest battery electric vehicle automaker.

Yes, Stocks Are Still Attractive
Lower your expectations, but with bonds likely to struggle, the “TINA” market for stocks continues.

Where Are the Bargains in Tech in 2022?
We remain bullish on the key secular trends in technology but think the sector overall is a little pricey.

Why India's Stock Market Boomed in 2021
Five charts on India's big stock market rally.

Stock Analyst Updates

Fair Value Increases for Pfizer, BioNTech, and Moderna
Increased contracts for coronavirus-related products are just part of the reason for the upgrades.

Rekenthaler Report

For Retirees, When Inflation Arrives Is as Important as Its Magnitude
A look at retirees, inflation, and sequencing risk.

Why SPACs Are a Racket
If you like paying load fees, you’ll love special-purpose acquisition companies.

The Long View Podcast

Best of The Long View: Investing
Some of the top moments in our conversations with investment managers, writers, and thinkers.

Policy

An Investor’s Guide to the Biden Administration in 2022
Some legislative priorities tracked with our expectations in 2021, but the fate of Build Back Better is still unclear.

Most Requested Stock Quotes

Apple
Microsoft
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Salesforce.com Inc
AT&T Inc

Most Requested Fund Quotes

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Dodge & Cox Stock
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Most Requested ETF Quotes

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Morningstar.com does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.