As the chance of a recession attracts nearer,
Citi
group has produced a display of 30 shares to assist traders discover alternatives through the second half of 2022.
Stocks have rebounded in current weeks with main indexes up by double digits from their June lows. The
S&P 500
has risen about 10% because the finish of June, bringing it nearer to Citi’s revised year-end goal of 4200. The market has been centered on macro dangers like inflation however is transferring nearer to a recession decision, stated Scott Chronert, a Citi analyst, in an Aug. 5 be aware. He expects a gentle recession through the first half of 2023, whereas Citi economists are modeling for a recession through the second half of that yr.
Because of this, traders might need to contemplate single shares with sound development tales, Chronert stated within the be aware.
Chronert stated he expects larger valuations because the Fed comes off its present hawkish path towards the tip of 2022. This implies that as we get nearer to a recession, the Fed is extra more likely to begin easing. When that occurs, price-to-earnings multiples can transfer larger, Chronert stated. “In that environment, we are suggesting thematic names that can do well on the premise that the market will be looking for structural growth characteristics to navigate a recession effect,” Chronert advised Barron’s.
Citi produced a display, “The Thematic Thirty—Stock Selection Opportunities for 2H” that lists the highest 30, large-cap shares, all Buy-rated, which can be related to themes, that may assist traders determine the following group of development shares. Stocks in these themes are inclined to have stronger income and earnings development profiles, in addition to larger margins, relative to the index common, in accordance with the Aug. 5 be aware.
For this display, Citi whittled down the themes to 6: Automation/Robotics; Internet Driven Business Models; Artificial Intelligence; Emerging Manager, Top Brands; and Net Zero. The financial institution seemed for above common earnings development however screened out low-quality, constructive or stabilizing revision traits, in accordance with the be aware.
Topping the checklist is General Motors (ticker: GM), which seems in seven themes, together with Automation/Robotics. GM’s inventory is down about 36% this yr however the inventory is No. 1 on Citi’s checklist with an estimated complete return over the following 12 months of 142.5%. GM rose greater than 4% Monday to shut at $37.57.
Next is MGM Resorts International (MGM). The inventory appeared in 5 themes, together with EM Consumer. MGM’s inventory is down year-to-date by 23% however positioned second on Citi’s checklist with an estimated complete annual return of 65.5%. Shares have been off by 21 cents to finish Monday at $34.50.
In third place is
Nvidia
(NVDA) with an estimated annual return of 51.4%. On Monday, the chip maker shared preliminary monetary outcomes for the second quarter that have been under expectations. This induced its inventory to shed greater than 6% to shut at $177.93 Monday. Nvidia appeared in eight themes, together with Artificial Intelligence. Shares are down 41% this yr.
Booking Holdings
(BKNG), which owns KAYAK, Priceline.com, Booking.com and OpenTable, gives on-line lodge reservations, trip leases and flights. The inventory is down about 18% this yr. Booking seems in 5 totally different themes together with Internet Driven Business Models. It ranks fourth on Citi’s display with a forty five.2% estimated annual return Shares on Monday have been up practically 2% to finish at $1955.80.
In fifth place is
IPG Photonics
(IPGP), which makes fiber lasers and amplifiers which can be utilized in totally different industries equivalent to telecommunications and medical. The inventory had declined about 41% this yr. IPG Photonics appeared in three themes together with Automation/Robotics. Its estimated annual return is 43.5%, Citi stated. The inventory gained 32 cents to shut at $102.16 Monday.
Shares of
Walt Disney
(DIS), the media firm, have dropped greater than 29% this yr. Disney competes in opposition to rivals equivalent to
Netflix
(NFLX) and
Apple
(APPL) in streaming however most of its revenue potential lies in its theme parks section. Disney touched 5 themes, together with Top Brands. It ranks sixth with an estimated annual return of 36.1%. The inventory elevated by greater than 2%, closing Monday at $109.11.
Last week,
Amazon.com
(AMZN) stated it will purchase Roomba maker
iRobot
(IRBT) for $1.7 billion. The e-commerce large appeared in six Citi themes together with Automation/Robotics. Amazon.com’s inventory is down greater than 16% however ranks seventh on the Citi display with an estimated annual return of 31.3%. The inventory on Monday was down about 1% to shut at $139.41.
Meta Platforms
(META) has seen its inventory fall about 49% this yr. Formally referred to as Facebook, Meta appeared in 9 themes, probably the most of any firm within the prime 10. Meta’s estimated annual return is 31.2%. Shares have been up greater than 3% to $170.25 Monday.
Last week,
PayPal
’s
(PYPL) reported second-quarter earnings that got here in forward of expectations however the inventory continues to be down about 49% this yr. The fintech seems in eight Citi themes, together with Internet Driven Business Models. Its estimated return over the following 12 months is 27.7%, which ranks it ninth on the display. Shares have been up 1% to $96.21.
There can be Domino’s Pizza (DPZ), which manages a community of company-owned and franchise-owned pizza shops. Two weeks in the past, Domino’s reported second-quarter outcomes that have been blended. The inventory is down 30% this yr. With an estimated annual return of 23.5%, Domino’s locations tenth on Citi’s display. Shares have been up about 2% to $394.89 Monday.
Write to Luisa Beltran luisa.beltran@dowjones.com