Investors who have a high exposure to stocks in 2022 probably wish the year would end. Unless they raised their allocation in cash, their losses in the portfolio are mounting.
The war in Ukraine earlier this year increased energy costs in Europe. This raised the pace of inflation. Globally, most countries faced unprecedented inflation rates. In turn, central banks collectively raised interest rates. This dynamic is pressuring investors to seek safe havens.
Central banks are fearful that their few tools to combat inflation will become ineffectual. The longer prices keep rising, the harder it is for banks to achieve price stability.
As interest rates rise, investors are re-modeling the stock market’s fair value. Investments compete with risk-free cash. The higher this asset pays interest, the more stocks must compete for investor money.
There are seven safe havens for investors looking to protect their gains.
|CF||CF Industries Holdings||$101.70|
|CNQ||Canadian Natural Resources||$51.69|
|JNJ||Johnson & Johnson||$163.28|
|MMI||Marcus & Millichap||$35.69|
|SQM||Sociedad Quimica Y Minera||$103.61|
CF Industries Holdings (CF)
CF Industries Holdings (NYSE:CF) traded as high as $119.59 before pulling back on August 25, 2022. Traders took profits instead of holding this agricultural fertilizer distributor.
In the first half of 2022, CF reported net earnings of $2.05 billion and adjusted EBITDA of $3.60 billion. It bought back $590 million worth of shares or 6.6 million shares. Many European producers shut down nitrogen production in response to surging gas costs. Conversely, CF’s competitors face $2,000 in ammonia costs. Winter is fast approaching. This will tighten the world availability of its product.
Europe’s unfavorably high production cost will help CF stock. The American firm will benefit as prices for its product rises substantially. For now, CF is not increasing Urea Ammonium Nitrate (“UAN”) to export more. Although it has record exports, it wants to focus on ammonia export.
CF Industries will monitor the demand and margin opportunities for UAN. By next year, a shortage in the product should boost the company’s profit margins, making it one of the safe havens for investors to buy into now.
Canadian Natural Resources (CNQ)
Canadian Natural Resources (NYSE:CNQ) reported strong second-quarter results that enabled the firm to declare a CAD 1.50 special dividend. It executed well on operations in the year-to-date period. This increased CNR’s free cash flow generation.
The company has top tier long life low decline assets. In addition, it has low maintenance capital requirements. It also has a low-cost structure. After management rewarded shareholders, new investors should consider this safe haven stock. Oil and natural gas demand will increase. Supply dynamics are favorable.
President and Chief Executive Officer Timothy McKay said that the company benefited from a good premium to WTI crude oil. Oil supply cuts led to higher prices.
Looking ahead, CNR expects its trans mountain unit in service. In addition, it has several projects on the thermal side. This will take one or two years to add to revenue meaningfully. Long-term investors should expect output to ramp up in the next few years. Still, it is one of the safe havens for investors with a long-range plan.
Cenovus Energy (CVE)
Revenue was CAD 19.2 billion. The energy firm is a classic safe haven that generated strong cash from operating activities of nearly $3.0. It also posted free funds flow of $2.3 billion.
Cenovus took advantage of the strong cash flow to cut its debt. It allocated around half of its excess free funds flow to pay down its debt and reward shareholders. In Q2, it increased shareholder returns by buying back more than $1 billion worth of shares.
Cenovus locked in $500 million to $700 million over the next three years to invest in its upstream business. It already bought the hardware. As a result, it is not exposed to any inflation for that acquired equipment.
Expect margins above its historical average. In the near term, CVE stock will move whenever WTI prices change. But this is one of the safe havens for investors that will pay off in the long term.
Johnson & Johnson (JNJ)
J&J has three priorities. First, it will split its consumer business to create a global consumer champion. This allows the company to focus on pharmaceuticals and medical technology. Not only will it spin off value to investors, but it will also reinvigorate the company’s focus on the core business.
J&J’s second priority is improving MedTech’s performance. The unit is the second largest company. The unit grew at 1.5% in 2017. By the first half of 2022, it grew at a 6% rate.
The pharmaceutical business is the company’s third priority. It is preparing for a loss of exclusivity for Stelara. It will need to grow its revenue to $60 billion by 2025.
The company recognized the undervaluation of its stock. On Sept. 14, J&J said it would buy back $5 billion in stock.
Marcus & Millichap (MMI)
The company returns strong shareholder value through a dividend and stock buyback. It balances capital returns to its business growth expansion through a capital allocation initiative. It plans to buy back up to $70 million in shares. This represents only around 5% of its market capitalization and around 12% of its available cash.
Marcus & Millichap runs a cash-generating business. It is prioritizing the return to shareholders before pursuing aggressive acquisitions. The company’s financing arm has become more competitive. It is executing on its private client business. Its strong positioning led to bigger deals. Investors should expect its partnerships to bear fruit in the coming quarters.
The broker count continued to fall from its peak in early 2021. Those individuals are strategically important. The company will need to train and support them to grow its teams.
Novartis (NYSE:NVS) traded at lower highs since its shares peaked in April 2022 at around $94.00.
The company won a case against a whistleblower on Sept.14, 2022. The lawsuit accused the firm of paying kickbacks to doctors through bogus speaker programs. The plaintiff filed the lawsuit alleging an illegal promotion of its multiple sclerosis therapy Gilenya in 2013.
Earlier this month, Novartis said it would invest $300 million in next-generation biotherapeutics. This would create a fully integrated environment for developing biologics. Biologics are more complex than other medications. Although they will likely take longer to develop and cost more, Novartis will realize higher profit margins from biologics.
In the second quarter, the company posted revenue of $12.78 billion, down by 1.4% from the previous year. For 2022, it expects sales to grow in the mid-single digits. Its core operating income will grow in the mid-single digits, too.
Sociedad Quimica Y Minera (SQM)
Sociedad Quimica Y Minera (NYSE:SQM) is a Chilean chemical company that supplies plant nutrients. In the second quarter, the firm earned $3.01 a share. Revenue rose by 342.2% Y/Y to $2.6 billion. Gross profit rose by 598% to $1.297 billion.
SQM stock pulled back from its multiple tops of around $115. Investors expected more, which is unreasonable given the strong growth it demonstrated. The company will modify its contracts with customers in the coming weeks. The Head of Business Intelligence, Felipe Smith, said that the company will negotiate prices that align more closely to the market index price.
The company will increase its capacity as it hikes production levels. Export-related costs will rise, as will the cost of inventory. Still, as prices rise dramatically, investors should expect improving profitability in the next few quarters. In addition, demand is 30% higher than last year. By 2025, Sociedad expects a demand of above one million metric tons. By 2030, demand will top 2.5 million tons.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.