3 stocks we think can beat the market in the second half of 2022

Every investor wants alpha: the extra return over that generated by a benchmark index. Many titles don’t provide alpha at all, but some do.

We asked three Motley Fool contributors to identify stocks that they think could beat the market in the second half of the year. That’s why they chose AbbVie (ABBV -4.17%), Astra Zeneca (AZN -0.73%)And Johnson & Johnson (JNJ 0.18%).

Ride the bear market with this large drug manufacturer

Prosper Junior Bakiny (AbbVie): The year has been good for pharmaceutical giant AbbVie, at least so far. The company’s shares are faring much better than the S&P 500. AbbVie benefits from the fact that life-saving drugs are in high demand even during difficult economic times. Additionally, the drug stock was likely heavily discounted prior to its recent form phase.

Even after strong performance since the beginning of the year, AbbVie’s forward price / earnings (P / E) ratio is a modest 10.8, which compares favorably with the pharmaceutical industry’s forward P / E of 13, 5 and the S&P 500 of 16.95. Meanwhile, AbbVie’s business is solid. It continues to record strong revenue and earnings growth. Although it will lose patent exclusivity for its hit rheumatoid arthritis drug Humira next year, sales of AbbVie’s new immunology products – Skyrizi and Rinvoq – continue to grow rapidly.

Then there is the AbbVie dividend. The company is part of the Dividend Kings group with a series of 50 consecutive years of dividend increases. AbbVie’s 3.74% dividend yield is well above average. Dividend stocks can help smooth out market losses during a recession. Of course, they can also be excellent sources of passive income.

Market-wide headwinds such as inflation and geopolitical tensions may worsen before they improve. But thanks to its solid lineup, juicy dividend, and reasonable valuation, AbbVie can help investors through these tough times. The pharmaceutical giant is expected to be well positioned to outperform the broader market during the second half of the year and beyond.

Lots of reasons to be bullish

David Jagielski (AstraZeneca): This year, investors have moved away from risky growth stocks and more towards safer investments. That’s why I believe AstraZeneca can beat the market in the second half of the year, just as it has done so far in 2022.

One of the main reasons investors might load the stock in the second half is that it is a safe stock that pays a solid 2.2% dividend yield. That’s better than the average S&P return of 1.7%. AstraZeneca is also priced modestly, with shares trading at a forward price-to-earning multiple of 15. This is an attractive valuation given the company’s growth potential.

AstraZeneca has 183 projects in the pipeline. Among its most promising candidates is the breast cancer drug Enhertu, which has been shown to be effective in treating patients with high and low levels of HER2 breast cancer. The drug is currently approved to treat high levels of HER2 under certain conditions (eg, cancer is metastatic or unresectable). AstraZeneca is seeking approval to expand its use to even low levels. If that happens, it could add $ 2.5 billion to its potential, bringing the annual revenue spike to a possible $ 6.6 billion.

Another reason investors might gravitate to AstraZeneca’s shares this year is its strong cash flow. Over the past two years, the company has generated just under $ 6 billion in free cash flow. With so much cash on the way, the drug maker is in an excellent position to invest in its operations and handle any headwinds that may come up. AstraZeneca could have momentum that will last not just for the second half of 2022, but for the entire decade and beyond.

Safe as they come

Keith Speights (Johnson & Johnson): I think Johnson & Johnson will likely outperform the market during the second half of 2022 for many of the same reasons my colleagues put forward for AbbVie and AstraZeneca. Although J&J has achieved the level of earnings these two stocks have achieved so far this year, it is still easily beating the S&P 500.

My bullish outlook on Johnson & Johnson is mainly based on two factors. First, the United States is likely to be in a recession already or will soon be. Second, J&J’s upcoming spin-off of its consumer health unit will be increasingly attractive to investors.

During recessions, safe haven stocks generally perform better than most. Johnson & Johnson is as safe as it comes. The company has been in business since 1886. It markets the products customers need. He is a Dividend King with 60 consecutive years of dividend increases. J&J is also very stable financially.

The healthcare giant plans to spin off its consumer business next year. This will leave Johnson & Johnson with two segments: pharmaceutical and medtech. Both have stronger growth prospects than the consumption unit.

Jessica Moore, vice president of investor relations at J&J, noted during the company’s second-quarter conference call that the company is “confident” that its pharmaceutical segment will generate market-appropriate operational sales growth for the 11th. consecutive year in 2022. Its medtech segment should also have easier year-over-year comparisons in the third and fourth quarters.

I suspect that investors will pay much more attention to the relative strengths of these two businesses the closer we get to the consumer health spin-off. The more attention is focused on the positives of J&J, the more likely the stock is to beat the market.

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