Tesla, Lennar, MGM: 3 stocks to watch going into 2022
Ross Gerber, Gerber Kawasaki Wealth & Investment Management CEO Ross Gerber joins Yahoo Finance Live to examine the outlook of several of the stocks he favors the potential of in 2022, including Lennar's fortitude in the home-building market, MGM resorts' position in the gaming space, and Tesla's continued growth.
Video Transcript
[MUSIC PLAYING]
ZACK GUZMAN: Well, we are just now a few hours if you want to call it that, away from 2022 and we wanted to take a look back on 2021 but mostly, look forward with one of our favorite stock pickers in 2021 looking ahead to 2022. And here he is, Ross Gerber, Gerber Kawasaki Wealth and Investment Management CEO joining us once again. And Ross, happy new year, man. Good to have you here.
ROSS GERBER: Thank you.
ZACK GUZMAN: We're going to do this in countdown fashion. So we'll go three, two, one.
ROSS GERBER: Right.
ZACK GUZMAN: We'll start with number three for next year, in terms of your top stock picks for investors to watch. And one of them is in the housing sector. And that's been getting--
ROSS GERBER: Yeah.
ZACK GUZMAN: -- a lot of attention, Lennar you like?
ROSS GERBER: Yeah. You know, you just had a woman on talking about the strength in the real estate market and you know, the backdrop of rates, I think the fear is well overdone because of coronavirus. We actually don't think the Fed will actually hit their three rate hikes next year, we'll see. But if it does happen, it won't be till the end of the year and so housing is a supply and demand imbalance on a massive scale. And home builders like Lennar, especially Lennar which is really large, established home builder in multiple regions, are just benefiting from this enormous demand. So every house they're building you know, it's just the profits just go up every month because prices keep going up.
The only challenge they have, which is quite large, is labor and supply chain, which they're managing OK. But because they're a large player, they're really in the best position to benefit as this alleviates over the next couple of months. But what they're paying more for costs, they're getting a lot more in margin, and with a, you know, 7 to 10 P/E ratio and a 20 plus percent growth rate, Lennar is one of the cheapest stocks we own in the market based off its growth rate to price.
BRIAN CHEUNG: Hey, Ross. Brian Cheung here. All right, let's go over to number two and I understand it's a betting company, casino company. I've seen--
ROSS GERBER: Yeah.
BRIAN CHEUNG: --a lot of ads with them featuring Jamie Foxx. Tell us a little bit more about your pick.
ROSS GERBER: Yeah. Well, MGM is a long-term holding of ours and we've been adding to it on the weakness because of Omicron. And we absolutely believe this is the end game for corona, this winter being sort of one of the tougher winters again. But as we-- each winter rolls on, this will become much more normal and much less disruptive. So we've seen a little blip in the road and this opportunity to add to MGM in here because what we suspect over once spring gets around is that this will be gone and the party will be outrageous in '22.
So Vegas is going to be a huge beneficiary of this party because traveling internationally sucks now. It's just a pain and most people want to go do stuff. So Vegas is a really easy destination and super fun. We've got sports, we've got entertainment, Adele is going to be there with her residency, and then you've got an environment that I think is fairly safe to party in because they're working very hard to make it safe for you know, our health. And so it's a big challenge for companies like MGM but we expect things to just get better and better for them.
ZACK GUZMAN: I guess to maybe let's distinguish what our kind of grading metrics here are for best stocks for 2022, I assume we're just going to use a one-year time horizon for investors. Of course--
ROSS GERBER: Right.
ZACK GUZMAN: --you might have a longer one. You know, both of these stocks are up by about 50% on the year. So interesting to see maybe that momentum carry over into next year. You know, one of the other ones we were talking a lot about this year maybe hadn't panned out, both you and I were expecting bigger things I think from Disney. That really didn't happen.
So if there's--
ROSS GERBER: Right.
ZACK GUZMAN: --a conviction meter, before we get to number one, I want to stretch a little bit here before-- I want to build some momentum before we get to number one, but if there was a conviction meter here between number three, number two in terms of which ones you see maybe for sure being better how do you pair those up?
ROSS GERBER: Well, in my fund GK, you know, they have actually almost equal weightings about 3% to 3.5% weighting, so. But if I had to pick one, you know, I'm MGM all the way because I think the upside in China there is possibly huge if Macau actually becomes a real destination again. And it looks like they're going to get their license renewed. And we expect something out of Japan as well. They have this Osaka deal which is huge but with things coming back, MGM has a lot of potential upside. Lennar is like a good, safe, solid pick. Not as exciting, but should have great returns over the next 12 months.
BRIAN CHEUNG: All right, Ross, we got the drum roll here, give it to us. Number one, your number one stock pick for 2022.
ROSS GERBER: I mean, it wouldn't be me if I didn't say Tesla. You know, it's an old story now but look, I was the Apple guy for like 15, 20 years, you know. I'll be the Tesla guy for 20 years and I'm on year, you know, like eight or nine now. And I think over the next decade, Tesla will be the most consequential company in the history of business, seriously.
And I have full self-driving beta, and I use it daily, I'm training the car. It just gets better monthly. It gets better incrementally each month in a way that's noticeably different. And I think in 12 months, we're going to see amazing breakthroughs in AI and technology. And what Elon has done yet, we don't know, you want to own stock in this future. So with robotics, AI, and the dominance in the EV and climate space, Tesla is the best stock of all time.
ZACK GUZMAN: You know, Ross as you know, I love having you on. But it does put me in a pickle when I have to be devil's advocate to push back on your Tesla love.
ROSS GERBER: Do it. push back.
ZACK GUZMAN: --just because I have-- someone's got to.
ROSS GERBER: Yeah. Do it.
ZACK GUZMAN: And one of the things that I turn to is obviously today we have, I'm not going to use the data point today that we got, which of course, is the recalls for a lot of their cars--
ROSS GERBER: Right.
ZACK GUZMAN: --on some of the camera issues and the trunk. But more just kind of I guess as these entrants come in from traditional automakers, what that might look like just given as I told you, as we talked before, my dad got a Tesla, a Model Y.
ROSS GERBER: Right.
ZACK GUZMAN: He was loving it early on. Now some issues, the car is stuck. When it turns to service, when they're going up--
ROSS GERBER: Right.
ZACK GUZMAN: --against these major dealerships, what does that look like for Tesla in 2022?
ROSS GERBER: Right. So Tesla is a better AI technology company than a car company as we've all learned over the last 10 years. And they build cars, but they're basically building an iPhone on wheels. And so the entire infrastructure that they've been building around service, for example, has been a big challenge for them. They've innovated some amazing things like mobile service.
But I'll give you an example, the service center in Santa Monica is so overburdened with customers because they've grown so fast and they're supposedly getting this new space anytime soon. But the way it works it's like crazy there, you know. And the employees are just so good because they've been able to deal with the sort of like rapid, rapid growth. So this has been a challenge for Tesla, will continue to be a challenge for Tesla as they continue to grow. But they have the resources and they're investing in solving those facility problems like in Santa Monica. So we expect a huge facility to open soon.
But it absolutely is an issue for Tesla, as it's an issue for every car company though. So I want to keep that in mind, recalls are very normal in the car industry. This is a very minor thing, most cars aren't even affected by it, it's just the potential. So you know, I think Tesla has a lot of room to improve in the automotive area of their business and I think they put a lot of effort into doing that. But they care about the customer and that's something that's different than the dealers, who when you go to a car dealer, it feels like they don't give a crap about you.
ZACK GUZMAN: Or perhaps in the negotiating process as well. When we look at--
ROSS GERBER: Oh, it's--
ZACK GUZMAN: --maybe broader--
ROSS GERBER: It's horrible, yeah.
ZACK GUZMAN: You gave us three picks to chew on there for next year. More broadly though, when you think about the investing picture, obviously it's always difficult to predict these things as 2022 and '21 proved out. But if you're looking at maybe some of those storylines that we know are more market-focused, when you think about inflation, what the Fed might do, we got like a minute left here. So just compartmentalize I guess what investors should be on the look for when it comes to maybe some of those issues around returns next year?
ROSS GERBER: Well, I have no doubt that all the issues we're talking about today won't be issues because that's how it is. You know, it's like everything I say right now probably won't come true but you know, that's the way the world is you know, so we have to be very flexible as investors. When we look at earnings over the next 12 months, we're predicting $250 for the S&P, you can extrapolate out an 18.5 P/E and the market's fully valued.
So you know, it's easy to say the market might not do anything if the Fed raises rates next year. So we might lose money next year if the Fed raises rates but I don't think that's going to happen. I don't think the Fed is going to raise rates. I think we're going to be in a very accommodative business environment. And I think business is going to do very, very well. And so I suspect we'll have a pretty decent year in stocks, not like the last couple but--
ZACK GUZMAN: You don't think the Fed is going to raise rates at all?
ROSS GERBER: No, I think they'll raise like once or twice but it will have such a huge impact in the markets in the digestion process, there's no rush to destroy the economy. Remember, the Fed's job is to have full employment, not to create recessions. And they've done this--
ZACK GUZMAN: Yeah.
ROSS GERBER: --over and over and over again throughout history. So hopefully, Jay Powell and Yellen, who are very, very smart, understand this and take very measured steps next year with all the different challenges our economy faces.
ZACK GUZMAN: Yeah. They've done that so far and their shift in tone hasn't spooked anybody--
ROSS GERBER: So I'm not worried about rates.
ZACK GUZMAN: --as of yet.
ROSS GERBER: I just don't think rates are going anywhere. I just-- I've been hearing this for years and years and years and years and years.
ZACK GUZMAN: Yeah, there's nothing wrong with optimism here to wrap up 2021. A lot to look forward to next year.
ROSS GERBER: Yeah.
ZACK GUZMAN: Ross Gerber--
ROSS GERBER: You know, you don't get--
ZACK GUZMAN: --hope to have you back--
ROSS GERBER: --anywhere being a pessimist.
ZACK GUZMAN: Hope to have you back multiple times next year, my friend. Happy new year.
