a peek at JPMorgan’s picks

what are stock market opinions worth?  almost everyone has one, and thus probably less than a dime a dozen. but when it comes from a company valued at around $250 billion, with nearly $3.7 trillion worth of assets under its management, it’s probably worth a lot more. so when JPMorgan announced ratings changes and its list of top stocks for 2022, it made a splash in the stock markets. some stocks such as Adobe (7%) and Cloudflare (9%) fell deep  into the red while the likes of Meta (2.1%) and Uber (4.3%) saw green, on December 14.

which way did the calls go, and why?

valuation check

the ratings changes were primarily surrounding tech and internet stocks, which have been amongst the biggest gainers over the past year. with 68 IPOs and special-purpose acquisition company, or SPAC, deals in the US this year, the total number of software companies monitored rose to 263. the primary reason for a downgrade on most that received them, rather than any potential downturn in business, was concern over inflated valuations. analysts wrote that growth rates remain the number-one determinant of software valuations. any tech company that shows a slowdown or abrupt drop in growth is likely to be punished by the markets.

another reason was the anticipated acceleration in interest rate hikes and stimulus tapering by the US Federal Reserve. when interest rates begin to increase, capital becomes more costly to acquire, and thus stocks with high valuations fall out of favour. the JPMorgan analysts added, “with rates climbing, this adds risk to higher multiple software stocks trading over 20 times revenue”.

post-covid recovery

however, one of Peloton’s fellow “pandemic stocks”, Zoom, actually made it to the list of JPMorgan’s top three picks among internet stocks. the other two are Procore, which provides software for construction management, and Intapp, a provider of cloud-based software for the financial-services segment.

Avalara, CrowdStrike, Model N, and SS&C Technologies were the big names that got ratings upgrades. among the top picks were usual suspects Amazon and Meta, but also somewhat of a surprise in the form of Twitter. Spotify, Bumble, and Match group were also pegged to show strong growth as part of the post-pandemic reopening wave, as was Uber.

for those with exposure to US stocks, or those looking to get into them, this list may serve as a good indication of which ones to pick and which ones to steer clear of.