Weekly roundup: stocks to avoid, bond funds to consider and taxes


Is it time to return to growth stocks?

If you want to relive January — or want to better understand what things looked like after the dust settled — check out “7 Charts of the Market’s Wild January.” It’s filled with helpful insights – and perhaps a few surprises.

For example, I knew that tech stocks had reversed in January, suffering an overall loss of 9%. What I didn’t realize was the huge performance gap between growth stocks and value stocks for the month: value stocks outperformed their growth counterparts by 11 percentage points, the most strong outperformance since February 2001.

The dominance of value probably made Dave Sekera, Morningstar’s chief US markets strategist, smile: Back in 2022, Dave pointed out that value stocks were one of the few undervalued pockets of the market. What does he think now, after the stock’s dominant outperformance in January? “We continue to find the value category at an attractive price. However, the carnage in growth stocks has pushed them well into undervalued territory,” he says. Dave highlights Microsoft (MSFT)Alphabet (GOOGL)and dozens of other bargain-priced ideas — growth-oriented and otherwise — in “Pullback an Opportunity to Pick Up Undervalued Stocks.”

Actions to avoid

Despite the rocky start to 2022, many stocks still look overvalued to Morningstar analysts, based on their fair value estimates. In my Our Picks column this week, I took a look at four stocks that are trading way above what we think they’re worth. My colleague Dave Sekera also looked at overvalued mega-cap stocks – Tesla (TSLA) and apple (AAPL) are just two of the 12 household names on Dave’s list.

Bond funds to consider

Bonds had nothing to brag about in January. All of Morningstar’s major bond fund categories (except bank loans) posted losses last month, and funds that held interest-rate-sensitive bonds were the worst. “Lately, bond investors had virtually no place to hide,” observed my colleague Katherine Lynch in her comprehensive recap, “Bond Funds Start 2022 in a Sea of ​​Red.”

I asked Christine Benz, director of personal finance and retirement planning at Morningstar, how investors should be thinking about bonds these days. His response: “Because of their low starting yields, bond funds are unlikely to have large returns over the next decade, and they could suffer short-term losses as interest rates increase. But high-quality bond funds should still hold up fairly well in the event of a large stock market shock. This means that holding assets in cash and bonds is essential for anyone who is about to dip into their wallet for living expenses, such as retirees.

Those looking to add bonds to their portfolios can find new ideas in “The Best Active ETFs for 2022 and Beyond,” which analyst Mike Mulach published earlier this week. You can find more of our top-rated fixed income picks in “The Best Taxable Bond Funds.”

It’s tax season!

I’m not really as excited about tax season as the exclamation mark above might suggest. But Christine Benz says, yes, doing tax work should be on our February financial to-do lists. Gathering all our documents – virtual or not – is only part of the process, explains Christine. While you’re at it, also use your tax documents to assess your financial health: “So, for example, if you recently got your W-2 and were also lucky enough to get a raise last year, See if you are funding your 401(k) to the maximum extent you can swing Look at your health savings account contributions If you are able to do an HSA and are covered by a eligible high deductible health care, are you taking advantage of these HSA contributions to the extent possible?”

Read on to find out what you can learn from your Form 1099 and watch Christine’s February Financial Tasks video.

Action of the week: Alphabet

Alphabet blew the roof off with its fourth-quarter results, driven by growth in search advertising and the Google cloud, as well as YouTube monetization. And strong earnings created operating leverage that widened margins more than expected, Morningstar analyst Ali Mogharabi said. “While we expect slower revenue growth this year, we expect double-digit growth from YouTube and cloud to continue,” Ali noted in his analyst update on the stock. We’ve increased our fair value estimate to $3,600 and the stock appears undervalued at the time of this writing.

Alphabet also announced plans to conduct a 20-to-1 stock split in July. My colleague Ruth Saldanha wrote a terrific article this week on what stock splits are and how the Alphabet stock split will work. As Ruth says, it’s just math!

–Susan Dziubinski

Editor’s Choice

Your financial to-do list for February 2022
It’s time to review your investments and use your tax records to assess the health of your savings plan.

Best Financial Services Companies to Own: 2022 Edition
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2021 ends on an optimistic note despite multiple bumps in the road
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4 EV Tech IPOs to Watch in 2022
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Will the deals from vaccine makers continue beyond 2022?
We believe the COVID-19 treatment market will have more longevity.

Supreme Court sided with 401(k) participants
It’s a win for employees, but a headache for plan sponsors.

What you can learn from your 1099 forms
These forms can provide valuable information about the location of your portfolio assets and tax efficiency.

Lessons from the Vanguard Target-Date Capital Gains Surprise
Target date funds are best kept where most of them are: in a tax-deferred account.

Winners take it all in liquid alternatives
Liquid alt strategies saw big inflows in 2021, but only a small handful gained the spoils.

Why sector funds are a bad bet
These funds sound great on paper but can be tricky to use effectively.

The best active bond ETFs for 2022 and beyond
Fidelity and Pimco are leading the way.

ETF flows cool as stocks stumble
Tepid ETF flows accompanied turbulent markets in January.

Should you buy commodity ETFs?
Direct commodity ETFs are a more attractive way to gain exposure.

4 newly rated funds to consider
These funds recently received their first rating from Morningstar analysts.

Bond funds start 2022 in a sea of ​​red
As the Fed seeks to raise interest rates, the funds most sensitive to rate changes have been hardest hit.

3 ETFs for an IRA
Income-producing ETFs are excellent choices for tax-deferred accounts.

Dividend trends for 2022
Morningstar US Markets Strategist Dave Sekera shares his expectations for dividend growth and stock buybacks this year.

7 charts of the stock market’s wild January
Volatility leads stocks to their worst start since 2009

4 actions to avoid
Despite a tough January for equities, these names still look overvalued by our indicators.

The pullback is an opportunity to recoup undervalued stocks
Value remains attractive, but it’s time to return to growth…and even technology.

Undervalued AT&T is on the right track
AT&T’s dividends will be lower, but the Morningstar analyst says the refocus on the telecommunications sector should reward patient investors.

Will dividend stocks outperform this year?
Dave Sekera discusses the outlook for dividend stocks in 2022.

Morningstar’s take on hard-hit social media stocks
Meta, Twitter, Pinterest and Snap are all in undervalued territory.

What does rising interest rates mean for dividend stocks?
Dave Sekera discusses the impact of inflation and rate hikes on dividend-paying stocks.

Sustainable fund flows fall for the quarter but peak for the year
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Read this before you start investing in sustainable funds
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After beating Costco, investors push food companies to detail greenhouse gas output
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Why the 60/40 portfolio continues to outlive its detractors
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Andrew Lo: Finding the perfect wallet – an “endless journey”
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What is a stock split?
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Tired of playing games?
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