As is almost a yearly tradition, many Seeking Alpha authors dutifully presented their lists of stocks for 2022. Growth stocks, dividend stocks, REITs, you can find a list of your interests on about any topic. In this article, I will present my contrarian take on such lists: 7 investments to avoid in 2022.
Ever since Facebook changed its name to Meta (FB), the recent limelight for this stock has not been directed on their existing platforms Facebook, Instagram, and WhatsApp, but on their plans for the metaverse. In October last year, I wrote an article about the Facebook metaverse and why I think it is a risky undertaking.
Meta is investing a boatload of money into the metaverse, which currently generates about zero dollars of revenue but might become very successful in the future. Also, Meta is constructing it top-down, while they are competing with many different companies in many different industries. Also, the Oculus which is supposed to be the portal to the metaverse has not been a widespread success until now, which might be an understatement. Last but not least, the reputation of meta as a company and their past behaviors probably make many people skeptical about them playing the key role of gatekeeper in a new metaverse.
But, if any company can succeed in building the metaverse from the top down, it could be meta. Still, I consider the steps this company is taking as very risky, and would not invest any money in meta in 2022.
#2 Meme stocks AMC and GameStop
In 2021, meme stocks were one of the biggest surprises for many investors, including me. For many people it was surprising to view how a Reddit (REDDIT) army could influence the price developments of two companies, GameStop (GME) and AMC (AMC) that were heavily shorted, as can be seen in the following graphs:
As you can see in the following graph, the percentage of outstanding shorts has dramatically decreased in GameStop, but the percentage still has not decreased much in AMC, though it was much lower at the start of the pump of its shares:
Still, I expect that share prices supported by memes and not by fundamentals will not last long, and I think that it is very likely that both stocks will dramatically underperform in 2022.
#3 Tesla and other EV producers
Producers of electric vehicles have had a wonderful last two years. As illustrated by a graph of the share price of Tesla (TSLA), its price – and its price to sales ratio – have truly skyrocketed during the last two years.
With a market capitalization of over $1 billion, Tesla is almost four times as valuable as the second-largest car producer in the world, Toyota (TM). Also, its peers Rivian (RIVN), Lucid Motors (LCID), BYD (OTCPK:BYDDF), and NIO (NIO) command very large market capitalizations, while their deliveries are still very small compared with the traditional automakers.
Electric vehicles have a couple of strong tailwinds, including decarbonization, government policy, and technological improvements. Still, I expect that the dramatic overvaluation of the electric vehicle producers will not last in 2022.
#4 (Some) office REITs
The pandemic has had some serious implications for many industries. At the beginning of the pandemic, this led to sell-offs in the cruise industry and the hospitality sector, which were heavily hit. For some industries, the impact of the pandemic will have lasting effects.
Starting in 2020 and continuing until now, many employees around the world started working from home. This was nothing new: working from home was already done before 2020, but the pandemic dramatically increased the extent to which this was done.
Working from home is here to stay. Of course, after the pandemic, people will increase their number of trips to the office again, but some things have changed. Employees experience the convenience of working from home, skipping their commutes, and improving their work-life balance. Also, managers and bosses who were at first more skeptical about their employees working from home now realized that most people still perform well from home.
Of course, most of us will not work from home full-time, but more people will continue working from home for more hours a week in the future. This will impact office REITs since companies will need less office space. As a personal note, my previous employer moved to a smaller office after a questionnaire which showed that the employees preferred working from home about 50% of their time. By doing this, they could save money and improve the well-being of their employees. I expect that, after their current leases expire, more companies will do the same. This will increase pressure for office REITs in 2022 and the years beyond.
#5 Meme cryptos Dogecoin and Shiba Inu
Cryptocurrency is a promising asset category that is likely to have some true value for the world economy, but it has been quite a volatile market over the years. Some cryptocurrencies have almost no added value over existing cryptos, other than, well, their popularity. Dogecoin (DOGE-USD) and Shiba Inu (SHIB-USD) have no improvements in technology but are still two of the largest cryptocurrencies at this moment.
In the following graph you can look at the price development of Dogecoin during the last three years:
The speculative nature of Dogecoin and Shiba Inu cannot be understated. Elon Musk, Reddit armies, and finfluencers have all contributed to these bubbles, and it seems unavoidable that they will pop at a certain moment.
Nobody knows if this pop will happen in 2022, or if the prices of these cryptos will skyrocket again. What I am sure about is that these are among the riskiest investments you can make, and I think that the likelihood they will dramatically underperform in 2022 is very large.
Palantir (PLTR) has been a battleground stock almost since the company went public at the end of 2020. Since then, its stock price almost quadrupled and came back down to earth to end last year at a value of a bit more than $18, as can be seen in the graph below. Still, even for a quickly growing software company, the stock has a lofty valuation of more than 23x sales.
Some arguments from bearish Palantir analysts are that the company has experienced enormous stock dilution, the company relies on government contracts, and could be very sensitive to rising rates. These are all potential points of worry and I will not take sides on this discussion, but one thing which seems clear as day to me is that Palantir’s valuation is simply too high.
I do not exclude the possibility that Palantir might become hugely successful over the years, but even if it does, its valuation seems much too high. In my opinion, this makes it likely that Palantir’s stock will underperform in 2022.
As Jerome Powell and Janet Yellen recently said, the current inflation situation can no longer be called ‘transitory’ or ‘temporary’. While inflation in 2021 was mostly caused by supply chain difficulties, in 2022 it is likely to be more about rising labor costs. This is expected to make inflation broader, but not necessarily higher. Still, inflation is expected to remain elevated for a longer period of time than previously anticipated, which does not bode well for currencies.
This is why I would not hold a large amount of cash in 2022, since its value is almost certain to decrease by inflation. Of course, it is not certain that other asset classes such as stocks, real estate, cryptocurrency, or metals will perform better, but historically, my bet is not on the dollar, the euro, or any other currency.
Well, there you have it, my brief list on where not to invest in 2022. This list included some overvalued assets which seem like speculative bubbles, some meme-impacted assets which I think are likely to return to earth in 2022, and some others (Meta, Office REITs, and cash).
I will likely be (very) wrong in some of my predictions, but the value of a prediction is not the prediction itself, but the reasoning which led to the prediction. I believe that most assets that I mentioned in my list have a high risk of losing money in 2022, and I am actively avoiding them in my investments.