Citigroup has developed a screen of 30 stocks to help investors find opportunities in the second half of 2022 as the likelihood of a recession rises.
There are several options available. The top three choices were chipmaker Nvidia (NVDA), casino operator MGM Resorts International (MGM), and General Motors (GM).
Major indexes have increased by double digits from their June lows as stocks have lately rebounded. The S&P 500 has increased by around 10% since the end of June, bringing it closer to Citi's updated year-end target of 4200. According to Scott Chronert, a Citi analyst, the market has been focused on macro issues like inflation but is nearing the conclusion of the recession. While Citi analysts predict a recession for the second half of 2023, he predicts a minor recession for the first half of the year.
Chronert advises investors to look at particular stocks with compelling growth histories in order to invest.
The Fed is more likely to start softening as we go nearer to a recession. Chronert predicts that once the Fed shifts away from its current aggressive policy before the end of 2022. According to Chronert, this might lead to an increase in price-to-earnings multiples. Chronert said to Barron's that in such a situation, "we are picking theme names that can do well on the concept that the market will be seeking for fundamental growth qualities to navigate a recession effect."
The top 30 large-cap companies, all of which are Buy-rated and connected to themes, are included in Citi's screen titled "The Thematic Thirty — Stock Selection Opportunities for 2H," which can help investors locate the coming group of growth stocks.
Stocks in these categories have stronger revenue and profit growth prospects and greater margins than the index average, according to the paper from August 5.
Citi has authorized six themes for this screen:
Some of the subjects discussed are automation/robotics, internet-driven business models, artificial intelligence, emerging management, top brands, and net zero.The document states that the bank desired above-average growth in profits while eliminating weaker, positive, or steady revision trends.
General Motors (GM) is at the top of the list, appearing in seven topics, including Automation/Robotics. GM's stock is down around 36% this year, yet it ranks first on Citi's list, with a total return of 142.5% expected over the next 12 months. GM climbed more than 4% to $37.57 on Monday.
MGM Resorts International comes next (MGM). The stock appeared in five themes, one of which being EM Consumer. MGM's stock is down 23% a year so far, yet it ranks second on Citi's list with a total yearly return of 65.5%. The stock closed Monday at $34.50, down 21 cents.
Nvidia (NVDA) is in the third position, with a predicted annual return of 51.4%. The chipmaker released preliminary financial figures for the second quarter on Monday, which fell short of forecasts. As a result, its shares dropped more than 6% to $177.93 on Monday. Nvidia was featured on eight different topics, including AI. This year, the stock is down 41%.
KAYAK, Priceline.com, Booking.com, and OpenTable are all owned by Booking Holdings (BKNG), which offers online hotel reservations, vacation rentals, and flights in fourth place. Booking occurs in five distinct topics, one of which is Internet Driven Business Models. With a 45.2% anticipated annual return, it comes fourth on Citi's screen. This year, the stock is down around 18%. On Monday, shares rose roughly 2% to $1955.80.
IPG Photonics (IPGP) is ranked fifth, and it manufactures fiber lasers and amplifiers for usage in many industries such as telecommunications and medicine. This year, the stock has dropped 41%. Automation/Robotics was one of three topics in which IPG Photonics appeared. Citi estimates its yearly return to be 43.5%. The stock rose 32 cents to $102.16 on Monday.
The media company's Walt Disney (DIS) stock has plunged more than 29% this year. In streaming, Disney competes with Netflix (NFLX) and Apple (APPL), but the majority of its earnings potential is in its theme parks business. Top Brands was one of five subjects touched on by Disney. With a predicted yearly return of 36.1%, it ranks sixth. The stock gained more than 2% on Monday, finishing at $109.11.
Amazon.com (AMZN) said last week that it would pay $1.7 billion for Roomba creator iRobot (IRBT). The online retailer was featured in six Citi themes, including Automation/Robotics. Amazon.com's stock is down more than 16%, but it ranks eighth on the Citi screen, with a 31.3% yearly return. On Monday, the stock fell nearly 1% to settle at $139.41.
Meta Platforms (META) has had its shares drop by almost 49% this year. Meta, formerly Facebook, appears in nine themes, the most of any firm in the top ten. Meta's yearly return is predicted to be 31.2%. Monday, shares were up more than 3% to $170.25.
PayPal (PYPL) announced second-quarter profits that exceeded forecasts last week, but the stock is still down around 49% this year. Fintech is mentioned in eight different Citi topics, including Internet Driven Business Models. Its expected return over the next 12 months is 27.7%, placing it seventh on the list. The stock rose 1% to $96.21.
There is also Domino's Pizza (DPZ), which operates a network of company-owned and franchised pizza restaurants. Domino posted mixed second-quarter earnings two weeks ago. This year, the stock dropped 30%. Domino's is tenth on Citi's screen, with an expected annual return of 23.5%. On Monday, shares were up approximately 2% to $394.89.
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