The New Year is here, and it's time to hit the ground running. How you allocate investment funds across growth stocks, value stocks, and cryptocurrencies could be the defining factor in shaping your 2022 portfolio performance.
With that in mind, we asked a panel of Motley Fool.com contributors which of these investment categories offers the most attractive outlook for 2022 and beyond. Read on to see which one they think will bring you the best chance for success.
Don't overlook great deals in growth
Keith Noonan: Would I be shocked if growth stocks underperform value stocks in 2022? Certainly not. There are macroeconomic shifts at play that could easily lead investors to prioritize companies that offer lower risk profiles, have predictable businesses, and reliable dividends.
I'd be very surprised if the broader cryptocurrency market manages a performance that comes close to 2021's, but “never say never” has been good guiding practice in that corner of the investing world. So, I also won't completely rule out crypto once again ruling the roost.
That being said, I'll probably continue to concentrate most of my investing focus on growth stocks. Yes, there are legitimate concerns about the elevated state of valuations, particularly among tech companies with speculative outlooks. But hear me out.
The S&P 500 and the even more tech-heavy Nasdaq Composite index have posted respective gains of roughly 29% and 23% over the last year. However, that surface-level glance hardly tells the full story about the state of growth stocks. Consider that Apple (NASDAQ: AAPL) grew 35% to reach a market cap of more than $2.9 trillion, while Microsoft (NASDAQ: MSFT) grew 54% to reach a valuation of more than $2.6 trillion.
Somewhat obscured by the incredible gains for mega-cap companies is the fact that many promising small- and mid-cap growth stocks, having already seen major sell-offs, are trading down precipitously from their highs. Digital advertising specialist PubMatic, gig-economy marketplace Fiverr International, and game maker Zynga are three stocks in that category, and they'll be among my first big buys of 2022. There's good cause for portfolio diversification amid potential twists and turns across 2022, but I think growth stocks are still the best bet for investors seeking huge returns over the long term.
It's time for value to shine
James Brumley: I'm going to go with value stocks here.
Broadly speaking, I think it's time for market leadership to cycle from growth names to other areas. Value has lagged growth since 2017, and value stocks have outright stalled the past few months. But market trends have a funny way of reversing course when nobody's expecting this to happen.
This isn't an outlook based on mere expectations for different leaders, though. I suspect we're entering a phase that favors value picks for a couple of specific reasons.
One of them is inflation. It's clearly here, and while the Fed hasn't yet imposed rate hikes to curb it, the Federal Open Market Committee (FOMC) is forecasting that it will raise interest rates by a couple of percentage points by the end of 2024; nearly half of that increase should be in place by the end of 2022. While rising rates work against all stocks, they present more trouble for growth sectors like technology than they do for value sectors such as staples and financials.
The other reason I'm exceedingly bullish on value picks going forward is that this group tends to fare better in the latter stages of a bull market and/or economic growth cycle. Although this bull market, in place for more than 12 years, isn't over yet, I suspect we're much closer to its end than many people might care to believe.
None of this is to suggest there won't be some growth stocks that continue to hammer out good gains in the foreseeable future. If we're talking strategically about allocations here, however, it might be time to start exploring long-ignored options. Even something as simple as the Vanguard Value ETF (NYSEMKT: VTV) or the iShares S&P 500 Value Fund (NYSEMKT: IVE) would do the trick.
Play the long game with cryptocurrency
Daniel Foelber: Investors may speculate about the price of cryptocurrencies and whether their crypto investments will turn out to be winners. But the reality is that no one knows what the price of Bitcoin (CRYPTO: BTC) or Ethereum (CRYPTO: ETH) will be tomorrow, a week from now, or even five years from now.
Since the cryptocurrency exchange network is without a management team, earnings, or a balance sheet, we can't glean new information from quarterly conference calls or blame anyone if the price goes down.
Despite massive gains in 2020 and 2021, there is reason to believe crypto could continue outperforming growth stocks and value stocks over the long term. It's anyone's guess if crypto beats the market in 2022. But I would argue that a basket of mostly Bitcoin and Ethereum digital currencies (with some Solana and Cardano) could very well outperform the S&P 500 over a 10-year time frame.
When we take a step back and think about the potential for crypto to grow, we quickly realize that it isn't just about buying Bitcoin and hoping it goes up. The real growth is from practical use cases for cryptos, and that market isn't even out of the first inning.
If you're a believer in Bitcoin's ability to become an inflation hedge; a store of value in countries that lack their own stable fiat currency; and a competitor to gold over the long term, then buying Bitcoin in 2022 isn't the worst idea.
Similarly, if you favor smart contracts; decentralized finance; and the metaverse, and understand how public ledgers (blockchains) can disrupt every sector of every economy around the world, then buying some Ethereum is probably a decent strategy.
By the same token (pun intended), I wouldn't be surprised if Bitcoin and Ethereum fall 50% or more from their current levels if a crypto winter takes root and lingers for an extended period. For most investors, dollar-cost averaging into large and established cryptos is the best way to capture upside and limit the damage short-term volatility can have on a portfolio.
10 stocks we like better than Apple
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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Daniel Foelber owns Bitcoin, Cardano, and Ethereum and has the following options: long April 2022 $125 calls on Fiverr International, long February 2022 $185 puts on Apple, long June 2022 $100 calls on Fiverr International, and short April 2022 $135 calls on Fiverr International. James Brumley has no position in any of the stocks mentioned. Keith Noonan owns Fiverr International, PubMatic, Inc., and Zynga. The Motley Fool owns and recommends Apple, Bitcoin, Ethereum, Fiverr International, Microsoft, PubMatic, Inc., Vanguard Value ETF, and Zynga. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.