The bronze Charging Bull in the financial district of New York City.
The bronze Charging Bull in the financial district of New York City.
Robert Nickelsberg | Getty Images

U.S. stocks are set for another winning year in 2022, according to BMO Capital Markets.

Chief investment strategist Brian Belski set an S&P 500 price target of 5,300 for next year, 12.7% higher than the index’s close price Thursday of 4,704.54.

“Our secular bull market thesis for U.S. stocks remains alive and well. 2022 will be a year of less positive, yet positive, nonetheless,” Belski said in a Nov. 18 note.

The firm acknowledged investors’ worries about inflation, supply chain disruptions, rising yields, peak growth and uncertainty about the Federal Reserve and Washington. However, BMO believes factors to the upside will win out.

“We believe any price weakness resulting from these concerns will prove to be buying opportunities as the positive fundamentals underpinning U.S. stocks remain in place, in our view,” Belski said.

“We choose to stick with realities of low interest rates, positive earnings and still VERY doubtful investor sentiment that will continue to propel U.S. stocks higher,” he added.

U.S. stocks are moving toward a performance trajectory more driven by earnings and fundamental factors, according to BMO. That means while BMO expects 2022 to be positive, the firm believes next year will be more volatile and less positive than 2021.

“As such, we believe a transition to more active portfolio management will become an increasingly important tactic for portfolio managers in the quarters and years ahead,” Belski said.

BMO highlighted what it called a “barbell investment approach” that includes high-quality growth-at-a-reasonable price (GARP) stocks and high-quality dividend growth and yield names equally.

High-quality names are generally companies with low volatility, high return on capital and a strong balance sheet. GARP uses a mix of both growth and value investing metrics. Dividends are regular payouts of a company’s earnings to its shareholders.

Industrials and financials have the greatest weights in BMO’s barbell strategy, while no energy or utilities stocks make the cut.

The barbell strategy has a compound annual growth rate outperforming the S&P 500 and fares better than the overall market during periods of elevated volatility, according to BMO’s analysis.