Why the bull market will stay alive in 2022 --- plus 8 cheap stocks for your money now

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OPINION: Inflation will continue to be an issue throughout 2022, driven in part by high energy prices. This will force the Fed to play catch up on interest rate hikes. That could be bad news for the U.S. stock market.

To find solid independent market analysis and investment ideas, I like to regularly consult those unsung market heroes — stock newsletter writers.

Value stocks over growth Stock market outlook: The rolling U.S. market corrections last year made a lot of investors worried about inflation and Fed policy, and those concerns linger. But John Buckingham, editor of The Prudent Speculator, isn’t too worried about the stock market in 2022 because he expects economic growth to hang in there. “Historically, miserable stock performance has coincided with an earnings recession.

Favorite stocks: Here’s an important proviso. Like the other two newsletter writers below, Buckingham encourages investors to own a broadly diversified portfolio to reduce risk. But he’s OK with singling out a few that could be among your holdings, depending on what else you own. Another reopening play to consider: Walt Disney Co. DIS, -0.35%. The stock is down significantly on concerns about theme park and movie theater attendance. If COVID-19 worries recede, these concerns will diminish and investors likely will bid up the stock again. Meanwhile, Disney holds a powerhouse of film characters it can continue to monetize via toy sales, Broadway shows and theme-park tie-ins.

Consider the Dow Jones Industrial Average DJIA, -1.07%. Historically, the Dow is “overvalued” when it rises enough so that its yield falls to 2%. The Dow’s yield is currently well below that, at 1.77%. The Dow would have to fall 12% just to get back to its normal historical “overvalued” yield of 2%. The Dow would have to tumble 50% to get to its historically undervalued yield level of 4%. “Our system is saying this is a high-risk period for stocks,” concludes Wright.

In healthcare, consider Merck MRK, +2.43%. Its stock looks more reasonably priced now, following a 14% decline since November. Merck looks historically undervalued when its yield rises to 4%, and it’s pretty close, with a dividend yield of 3.6%. It’s not overvalued until the stock rises enough to push the yield down to 2.35%. This implies a move up to $117 could happen. The stock recently changed hands at around $77.

 

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