Citi has identified a group of stocks that it believes will do well in the second half of 2022, as investors continue to deal with market uncertainty and severe inflation. Stock markets suffered heavy losses in the first six months of this year as the ongoing and relentless selling brought the major indexes to their knees. The S&P 500 endured amazing volatility before the first half closed in bear market territory, sending the index to its worst first-half performance since 1970. With the second half now underway, investors are bracing for continued volatility as recession fears mount. That has led to a focus on stock picking, according to Citi. “Although the stock market is likely to remain in the grip of macro considerations, specific stock differentiation will be an important focus,” Citi strategists, led by Scott Kronert, said in a report on June 29. We expect business models to be as well. They were tested,” they wrote, emphasizing corporate management’s ability to deal with a range of issues such as business and supply chains. Read more ‘Dividend aristocrats’: Strategists name high-yield stocks to break out of a bear market Wall Street believes these battered global stocks are poised for a rebound , Wall Street banks are naming their largest global stocks for the second half – giving three more up 70% Kronert acknowledged the rise in recession risk and put the odds of a global recession at 50%. He said a recession will most likely be an event in 2023 – if it happens. Meanwhile, High consumer prices continue to weigh on investor sentiment, with decades of high inflation sweeping across many economies, including the US, Europe and parts of Asia Stocks that can withstand higher inflation How should investors position themselves in such an environment?Pricing strength, which refers to a firm’s ability to raise prices without losing business, gives firms an advantage amid rising prices.Such firms tend to withstand the inflationary environment better than competitors because they can pass on higher costs to to clients. Citi’s top picks for purchase-rated companies with the highest pricing power include Estee Lauder, Kellogg’s, Chipotle, and Domino’s Pizza in the consumer space, as well as Thermo Fisher Scientific and HCA Healthcare in the healthcare space. The bank also likes Amazon, Microsoft, Atlassian, and CrowdStrike in the technology sector. A handful of financial stocks have appeared on the bank’s screen as well, including Allstate Corp, MetLife and Hartford Financial Services. Citi’s “Top Conviction Ideas” also compiled a list of “Top Conviction Ideas” — the bank’s top picks for stocks. These include chemicals company Linde, auto parts retailer AutoZone, Walmart, electronics manufacturer Jabil, wireless operator T-Mobile, cybersecurity company Fortinet and biotech company Apellis Pharmaceuticals. Lam Research, a manufacturer of semiconductor equipment, is also on Citi’s list, with the stock having the highest price target for the bank among the bank’s top stock ideas. The stock closed at about $389 in trading Tuesday, which is a potential 85.1% upside from Citi’s $720 price target.
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