The age-old debate, growth vs. value, has been going on ever since stocks started changing hands. It’s no secret that growth stocks have outperformed value in recent years, with technology leading the way. But, the most profitable stocks in 2022 are leading the charge as investors take a more defensive approach.
With Federal Reserve officials suggesting interest rates will rise faster than expected, many stocks have started to sell off. In particular, growth stocks with high valuations and low earnings are the hardest hit.
With that in mind, higher interest rates mean less future income. And many investors will buy growth stocks based on the company’s ability to generate profits in the future.
On the other hand, value stocks are well-established companies with consistent sales. If interest rates rise, they may still be affected, but they have the cash to continue doing business.
That said, this year it will pay for clean companies that reward shareholders. Importantly, paying a dividend and buying back shares can increase shareholder value.
For that reason, here are the most profitable stocks in 2022 to get the most out of your money.
Most profitable stocks in 2022: 5 Berkshire Hathaway (NYSE: BRK.B)
- PER: 0.01
- EPS: 4.59
- Market capitalization: 708.5 billion
- Dividend yield: N/A
Warren’s Berkshire Hathaway lost some appeal as growth stocks took over the market post-pandemic. Still, Berkshire starts the year with +6% as crowded trades like tech stocks continue to tumble.
Although Berkshire does not pay a dividend, the money is reinvested in the company. Instead, Warren Buffet thinks the money is better spent investing in new projects. In other words, Warren continues to create shareholder value through steadily growing earnings.
Rather than paying a massive sum to investors via a dividend, Berkshire will invest in a new venture that can increase the value of the business.
With that in mind, Berkshire’s top holdings include Apple (Nasdaq:AAPL), Bank of America (NYSE: BAC), American Express (NYSE:AXP) and Coca Cola (NYSE: KO).
Although Apple is often grouped with growth stocks, the company has returned more than $128 billion to shareholders in the past five quarters. This is just one example of the many companies in Berkshire that are focused on rewarding investors. It’s no wonder investors are putting this stock on their list of top stocks in 2022.
No. 4 JP Morgan Chase (NYSE: JPM)
- PER: 10.57
- EPS: 15.81
- Market capitalization: 483.77 billion
- Dividend yield: 2.39%
The strongest of all bank stocks, JP Morgan Chase, is looking to solidify its position as the largest bank in the United States this year. With a strong balance sheet, growing revenue and high return on equity, JPM is what investors are looking for in a value stock.
Not only that, but when the Fed decides to raise rates, it could benefit JPM. In fact, bank stocks typically outperform other assets when interest rates rise. The reason for this is that banks can then charge higher rates, thereby improving margins.
At the same time, for banks to make money, there needs to be strong economic activity. If people take loans for various projects, banks earn more money.
On the other hand, if activity slows down and consumers borrow less, this can negatively affect banks. With solid economic forecasts this year, JPM intends to maintain its momentum.
Ford No. 3 (NYSE: F)
- PER: 33.74
- EPS: 0.71
- Market capitalization: 96.15 billion
- Dividend yield: 1.68%
Looking at Ford’s stock chart, you’d think it’s a growth stock, having risen more than 160% in the past year. In fact, the legacy automaker beat You’re here (Nasdaq: TSLA) to become the best performing auto stock last year.
But Ford has a long history of selling its cars and rewarding its shareholders. At the same time, the automotive industry is changing, with electrics now becoming a priority. And Ford is seeing strong demand for its electric model sales second only to Tesla in 2021.
After suspending dividend payments during the pandemic, the company is back on track. The first payment this year was 10 cents per share.
With that in mind, if Ford can continue to lead the charge in electric vehicles, shareholders should continue to see the returns.
Read on to find the most profitable stocks in 2022.
No. 2 CVS (NYSE: CVS)
- PER: 18.53
- EPS: 5.73
- Market capitalization: 140.17 billion
- Dividend yield: 2.09%
CVS is another good bet to be one of the most profitable stocks in 2022, with the company crushing expectations. After another impressive earnings beat, CVS stock is within dollars of its ATH of $113 per share set in 2015.
On top of that, CVS is growing in all aspects of the business. The company’s growth strategy is bearing fruit. In the third quarter, CVS grew in all three segments (healthcare, pharmacy and retail) for total revenue growth of 10%.
Additionally, the acquisition of Aetna allows the company to combine healthcare benefits with CVS services. The merger helps improve the healthcare experience for everyone while increasing profits.
Although the merger created more than $70 billion in debt, CVS is aggressively repaying it. Since closing the deal, CVS has repaid $18.7 billion of outstanding debt.
Caterpillar No. 1 (NYSE: CAT)
- PER: 23.55
- EPS: 9.35
- Market capitalization: 119.08 billion
- Dividend yield: 2.00%
Another pandemic winner, Caterpillar, is up more than 150% since its March 2020 lows. Propelled by strong construction activity and demand for home repairs, Caterpillar stock soared to ATHs of over 246 $ per share.
Yet since hitting the ATHs in June, CAT stock has been moving in the wrong direction. At the same time, many stocks are selling off as investors take profits in anticipation of rate hikes next year.
Caterpillar is in a unique position with the United States and other governments around the world as they focus on rebuilding. With this in mind, the building benefits Caterpillar’s business, requiring more equipment to complete the projects.
That said, the company is growing, with third-quarter revenue up 25% year-over-year (YOY) to $12.4 billion. Plus, Caterpillar is a dividend aristocrat with 27 years of paying out investors.
Earn yield with the most profitable stocks in 2022
Although growth stocks have gotten all the attention in recent years, its value stocks are leading the way in 2022.
As the economy transitions from a low interest rate environment to possibly three or four rate hikes next year, this will certainly create volatility. With this in mind, it will be beneficial for owner companies that reward shareholders.
Companies can create shareholder value between dividends and share buybacks, which is exactly why these are the most valuable stocks in 2022. These companies are leading their industry while paving the way for future growth.
And finally, these are also companies that will continue to pay you as long as you own the stock. By reinvesting dividends, you can accelerate your growth, leading to higher returns in the future.
About Peter Johnson
Pete Johnson is an experienced financial writer and content creator specializing in equity and derivatives research. He has over ten years of personal investment experience. Digging through Forms 10-K and finding hidden treasures is his favorite pastime. When Pete isn’t doing stock research or writing, you can find him enjoying the outdoors or exercising.