The year’s end is in sight, and what a year it has been. We’ve had a turbulent time, politically, economically and socially – and the stock market has been no exception, producing a violent bear market. In this post-pandemic climate, some businesses have struggled, while others thrived and sent their market caps into orbit. In the spirit of reflection, let’s take a look over this year’s winners and losers with the 5 stocks that surprised us in 2022.
Meta Platforms Inc. (NASDAQ: META)
On Wall Street, the bigger they are, the harder they fall. Meta Platforms, formerly known as Facebook, suffered a collapse in its share price this year. Meta shares were trading for $333 on November 26th 2021 – just one year later, their stock price stands at $111.14. Sixteen months ago, the company was valued at over $1 trillion, and that valuation has since declined to around $270 billion. This sudden drop represents a 66% fall in value. As a result, the Silicon Valley firm, whose properties include Facebook and Instagram, is no longer one of America’s top twenty companies.
Blame for Meta’s astonishing reversal of fortunes is laid at the foot of CEO Mark Zuckerberg’s Metaverse initiative. The Metaverse is billed as a virtual reality experience through which business and pleasure can be conducted. Participants don virtual reality headsets and conduct their meetings in an immersive 3-dimensional space – this was Zuckerberg’s aim, at least. Far from representing the future of digital interaction, the Metaverse proved to be a busted flush. It failed to excite the general public, who were predictably averse to wearing goggles during their Zoom meetings, and investors were likewise unimpressed, as CNBC reported in October:
“Zuckerberg has said its [Meta’s] future is the Metaverse, a virtual universe of work, play and education. But investors just see it as a multibillion-dollar money pit, while the core advertising business shrinks — Facebook is forecasting a third consecutive drop in revenue for the fourth quarter.”
Following the dramatic slump, Meta has laid off 11,000 employees, representing 13% of its entire workforce. In a memo, Zuckerberg appears to accept that his huge investment in the Metaverse was wrongheaded, telling employees that:
“Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I made the decision to significantly increase our investments. Unfortunately, this did not play out the way I expected.”
This passion project of the tech CEO – which began in 2014 when Facebook acquired Oculus, has after almost a decade of work, failed to amount to anything tangible. With so much money sunk and a heavy toll paid in aid of the one-track goal – we’ve likely seen peak, Meta.
Occidental Petroleum Corp. (NYSE: OXY)
Energy companies have had a bumper 12 months, but few have outperformed Occidental. Sanctions on Russian natural gas by the West have driven prices up sharply, resulting in huge windfalls for energy firms. Shares of Occidental Petroleum Corporation, a Houston-based oil and gas production company, have risen by 140% this year – without an increase in year-on-year output. As much of Europe scrambled to replace the Russian energy it had depended upon for so long, they found a saviour in American liquid natural gas, and Occidental is one of several companies to reap the whirlwind.
Occidental has made so much money it embarked on a share buyback programme, drawing parallels with Shell, whose North Sea oil profits were so vast they bought back $4 billion worth of stock. Occidental’s prospects have been further buffeted by the investment of Warren Buffet, with Reuters describing the company as one of his “stock darlings. ”
The firm, which is over a century old and operates across the United States, the Middle East, Africa and Latin America, also manufactures petrochemicals. This includes the manufacture of vinyl for use in medical supplies, water supply piping, tubing and construction materials. In addition, they produce caustic soda, whose application stretches from paper production to battery recycling. Sanctions on Russian petrochemicals and resurgent Covid lockdown spasms in China, as well as the Biden administration’s made-in-America posture, have buoyed this side of Occidental’s business too.
These factors, in concert, work to give investors in Occidental a strong return on investment, which exceeds by some margin the ROE of the industry average. As Yahoo Finance reports:
“Occidental Petroleum has a pretty high ROE which is interesting. Additionally, the company’s ROE is higher compared to the industry average of 31%, which is quite remarkable.”
Northrop Grumman Corp. (NYSE: NOC)
Northrop Grumman shares have risen from $355 to $527 in the year to date, leading the firm to climb to 101st place on the Fortune 500. The American multinational aerospace and defence company has performed formidably on every metric. They have outperformed the S&P500 index both in the short and long term – they’re up 56% since 2017 against 38% for the S&P 500 during the same period.
The rising share price came hot on the heels of an increase in revenue growth. This year alone, revenue has grown by over 30%, with revenue per share having grown 51% as of September. Russia’s invasion of Ukraine and the extant conflict have served to benefit the US-based firm. Their products, ranging from strategic missiles to cybersecurity systems, have come under increasing demand as the US and its NATO partners have moved to shore up Ukrainian defensive capabilities.
Despite headwinds brought by supply chain difficulties, Northrop ranks amongst the top stocks in 2022, and LPT capital has expressed optimism about its continued good prospects, as they detailed in their October investor’s letter:
“We believe that revenue growth may accelerate in the next few years. A lot of ink spilled every year about the “massive” U.S. defence budget that critics claim is “out of control”. Given this, you might be surprised to hear that U.S. defense spending as a share of GDP is at the lowest level in recorded history, at a mere 3.8%. In other words, U.S. military spending could double and not be out of line with historical norms. While we are not calling for a new Cold War, given the global instability we are witnessing, it is not unreasonable to expect defense spending to grow faster than GDP over the next decade. ”
The tailwind from Ukraine has bolstered the company’s already formidable performance. The Virginia-based defence firm employs 90,000 workers across 550 facilities across all 50 American states and 25 other countries. The high barriers to entry in the defence industry mean that if, as expected, US defence spending rises, Northop will be well placed to benefit further.
Hotel Chocolat. (LSE: HOTC)
The much-loved chain of chocolatiers saw their share price melt away this Summer. As of the 16th of November, Chocolat’s share price sat at 159p, a fall of 67% on the year, representing a loss of over £400 million in value. The firm has performed especially badly in the USA, where it is expected to oversee a raft of store closures in the coming months.
Once a darling of the markets, Chocolat was not expected to take a turn for the worst. It has gone from being awarded a premium rating on its initial public offering in 2016, which earned it the backing of several hedge funds, to a sudden and dramatic descent.
The Morning Star reported in September of Chocolat’s stated expectation that they would post a loss in 2022, largely owing to their poor US performance, marking a stark contrast with their previous annual profit of £7.8 million.
The firm’s financial drag is expected to carry on into 2023 at least, though some investors continue to count the ailing confectioners amongst their stocks to invest in. As the Armchair trader reports:
“Phoenix Asset Management upped their position in Hotel Chocolat to over 10% of the traded equity after an initial investment at the end of July. Phoenix’s investment strategy typically revolves around buying great companies at deep discounts when short-term issues present themselves. Should this move prompt investors to take a closer look at Hotel Chocolat?”
One of the reasons undergirding some investors’ optimism is the hope of a surge in online sales. Through e-commerce, Chocolat can improve on its historically bad margins by cutting out the cost of its brick-and-mortar stores – though there’s no suggestion yet that any of those UK-based stores are set to go anywhere at this stage.
Alupar Investimento (BVMF: ALUP11)
It’s always good to be across emerging markets, and Brazilian utilities company Alupar Investimento serves to demonstrate why. Brazil’s rapid economic development is necessitating the expansion of the South American state’s infrastructure. Accordingly, successful firms in the field are doing good business, and with a $1.5 billion market capitalisation, Alupar can be counted among them.
Only a few short years ago, Alupar was a small company, though it has grown in size as it has won ever-larger contracts. Over the past five years, they have expanded their network kilometres by 50% and successfully navigated around every obstacle from planning to procurement, where many of their competitors have tripped up.
As of the 25th of November 2020, Alupar’s share price stands at 26.75 BRL (The Brazilian real), marking a steady increase on its 2021 price of around 24% – but this steady growth belies the best to come. As Leonora Walters reports in the Investor’s Chronicle, as soon as Alupar’s infrastructure is established, it opens the doors to a torrent of revenue, which will travel downstream to its shareholders.
Projects are tied to a 30-year regulated revenue contract which is indexed against inflation. With low overheads for up-and-running projects, much of this cash translates directly to profit. And the commissioning of new projects shows no sign of abating. As a result, in the first half of 2022, Alupar increased its dividends by half.
Simply Wall St echoes Walter’s optimistic assessment for shareholders, reporting that:
“We’re pleased to report that Alupar Investimento shareholders have received a total shareholder return of 19% over one year. That includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 13% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time.”
Honourable mention: Twitter
Owing to Elon Musk’s acquisition, Twitter doesn’t have a share price anymore. But shareholders will have been happy with his successful bid to take the social media firm private, given the high price he paid. Elon bid $58.20, over ten dollars more than the listed share price at the time of his offer.
His ambitions are to turn the lossmaking company around, and he has set about it by sacking thousands of staff and monetising the platform. The rollout of Twitter Blue, a service which will verify users for $8 a month, is hoped to return Twitter to profitability.
He has come under fire from lobby groups like the ADL for his commitment to enshrining the right to free speech on Twitter – and their efforts have reportedly scared off 50% of Twitter’s top advertisers. Musk’s stated intention is to return Twitter to the public marketplace, but the price it re-emerges at will have to be one for a future list.
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