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The year 2022 is on track to be one of the most volatile years for the S&P 500 in the past few decades. For NASDAQ, this has been the worst start to a year in its history. The sell-off was initially restricted to small and mid-cap companies, but now it is extending to the large caps, too, including Apple and Google.
Many factors are contributing to this volatility. The Feds started ending the pandemic-era stimulus; the Russia-Ukraine war has impacted commodity prices that are resulting in ever-increasing inflationary pressures. The interest rates have increased with expected potential hikes coming in the near future as well, and there is a fear of the economy going into recession.
All of this tells us to save our extra cash somewhere far out of reach and brace for a challenging environment.
But as I discussed yesterday, since starting my investing journey a few months back, I have worked on a system of taking a small portion out of my paycheck and investing in the stock market on a monthly basis. No, I am not a hero here. It's just that I have this strategy that if I like the fundamentals of a company and its valuation, I will invest with a long-term investment period in mind, at least five years. Plus, I evaluate dozens of companies in a given month but end up buying shares for only one or two because of my pocket size. So, the shares that do end up in my portfolio are most likely to stay there for a very long time.
Enough with the intro; let's move to the subject matter. In the next few minutes, I will walk you through my top picks for the month of June 2022. Please note that this is not financial advice. I am just sharing my top picks of shares that I would look into if I had money to invest in them.
I am Armaghan, and this is my story for today.
Top Pick # 1: MasterCard
Mastercard was founded in 1966 and is the world's second oldest and largest payment processor behind Visa. At its core, the Company enables electronic forms of payments as an alternative to cash and checks. As we speak, its network is accepted by over ten million global merchants and linked to more than fifty-five hundred global financial institutions.
Mastercard has so many positive things going on for its operations that it is difficult not to see the opportunities it can bring to any portfolio. The last few years have seen an evolution in the payment space, with the world opening up to alternate solutions, including blockchain. But despite this challenge, Mastercard's current infrastructure cannot be overlooked. In fact, the company has essentially reached universal acceptance in most developed markets.
Now on to tackle the problem head-on. Mastercard understands that blockchain can make its business obsolete, and therefore it has been working with the crypto industry. While announcing the Q4 results of 2021, the CEO of Mastercard was upfront in acknowledging that the company is working on different solutions and services to bring in the changing financial payment environment. The number of projects Mastercard is working on and the investments it is making to stay relevant assure me that it is a safe bet for years to come.
Mastercard processed seven point seven trillion dollars in volumes in 2021, which is only about three percent global market share in all digital transactions. Therefore, it is pretty clear that there are long potential growth opportunities left in the existing area, let alone the new ventures.
Over the last year, the Company saw a growth of almost 20% in revenues and over 35% in net income. Q1 of 2022 was also impressive for the Company, where it saw a massive 44% jump in its net income. In the latest quarter, Mastercard was able to beat the market by zero point six dollars.
For the dividends, since its IPO eleven years ago, Mastercard has given the growth in dividends every year. The Company has a payout ratio of 19.7%, which means that there is plenty of potential for an increase in dividends in the coming years.
As of now, the Company is trading at three hundred and fifty-seven dollars which is almost eleven percent lower than the fifty-two-week high. For me, it is still in the hold category mainly because of its valuation. The Price to Earnings ratio is 34, which is higher than its competitors, including Visa, America Express, and Paypal.
If you are looking for a strong performer to add to your portfolio, Mastercard is a company that you can look at. A target price of just about three hundred dollars will make me more interested in the Company, but as of now, I am keeping an eye on this.
Top Pick # 2: Black Rock
BlackRock is one of the most influential companies in the world. It is a multinational investment management company founded in 1988. As per the latest quarter report, BlackRock manages nine point six trillion of assets.
The Company has clients that are long-term investors, not looking for short-term gains. This has resulted in the allocation of capital towards long-term investments that provide good returns over a few years at least. Its major clients are pension funds, insurers, and governments, so its investments have been in areas with lower risks.
BlackRock has seen an increase in net income by double-digit percentages over the last three years. This has given the company impressive Earnings Per Share growth. BlackRock has seen eighteen years of consecutive dividend growth. However, I do not like the fact that it has a payout ratio of forty-two percent. This leaves less room for dividend growth in the future, but I am talking about many years from now.
The risk associated with BlackRock is the nature of its business. A major portion of the revenues is dependent on the number of assets under management (AUM) and the commissions on performance achieved. In case of a fall in the number of assets under management, the revenues would take a hit. The AUM generally falls in recessionary environments since the clients are more reluctant to invest. This means that BlackRock can see a performance hit in the coming weeks in case we see a full-blown recession.
As of today, the price of six hundred and seventy-one dollars is thirty-one percent lower than the fifty-two week high. Given the recessionary pressures that we see in the economy, I am expecting the price to fall further in the near future. My plan is to observe the price movement in the short run before committing to the shares.
As per my valuation using the Discounted CashFlow model, the company is underpriced and is a "buy". But since I know that the price can see a further drop due to macroeconomic factors, I will hold on to the decision for a few weeks. In case you want to know more about how I calculated the price using Discounted CashFlow model, you can go through the article on my blog, where it is available in more detail.
Top Pick # 3: Block
Block, formerly known as Square, is a financial service and digital payments company. The Company launched its first platform in 2010 and can be categorized as a true fintech disruptor. The Company has been reinventing itself at a considerable pace. A few months back, it had two main areas of operations, a point of sale system and a consumer-side cash app. Now, over a period of a few months, new arenas of business like music streaming, crypto, and an open developer platform have emerged as well. At this rate, Block might be an outright different company in a few years.
There are plenty of good things about the operations of the Company. The most important of these is that Block just recently announced that they are working with Apple to enable Tap To Pay on iPhones. This is huge for consumers and small businesses and obviously a win for Block as it can give a massive boost to the volumes processed by the Company.
Block has seen a massive increase in revenues since accepting cryptocurrency. There is a solid growth in subscription and service-based revenues, which is again a win for the company.
Since the company is in the growth stage, it is not paying any dividends. What makes Block one of the stocks to consider for investing in the massive drop in price in the last few months. Despite so many good things going on for the Company, the recent sell-off and Block's operations dependent on cryptocurrency, mainly Bitcoin, has resulted in the share price coming down to eighty-three dollars which is seventy-one percent lower than the fifty-two-week high. The Company has a very high Price to Earnings ratio, which is expected given its growth stock. The recent price drop, especially below ninety dollars, makes Block an attractive stock to add to the portfolio if you are looking for a growth stock.
So these were my top three stock picks for the month of June. Given the economic conditions and the stock market movements over the last few days, please make sure that you make your investment decisions after careful analysis based on your financial circumstances. Use this information as a starting point to look into these shares, and let me know what you think is an attractive price for these shares.
I am Armaghan, and this is my story for today.
I’m Armaghan Tanveer, a numbers guy by profession and a romantic by heart. I write about everything I find interesting, including productivity, investments, passive income, and personal experiences. If you like what I do, you can buy me a coffee ☕️ here.