Citi named a series of stocks it believes could do well in the second half of 2022 as investors continue to navigate market uncertainty and high inflation. Stock markets suffered steep losses in the first six months of this year as relentless selling brought major indexes to their knees. The S&P 500 saw wild swings before ending the first half in bearish territory, sending the index to its worst first-half performance since 1970. With the second half now underway, investors brace for continued volatility as recession fears grow. This has put emphasis on stock selection, according to Citi. “While the equity market will likely continue to grapple with macro considerations, stock-specific differentiation will be a key focus,” Citi strategists, led by Scott Chronert, said in a June 29 report. “We expect business models to be tested,” they wrote, highlighting the ability of business management to manage a range of issues such as labor and supply chains. Read the ‘Dividend Aristocrats’: Strategists name high-yielding stocks to weather a bear market Wall Street thinks these battered global stocks are poised for a rebound Wall Street banks name their top global stocks for the second half – and in give three 70% hikes Chronert acknowledged the growing risks of recession and placed the probability of a global recession at 50%.The recession is most likely a 2023 event – if it happens, he said. Meanwhile, soaring consumer prices continue to weigh on investor sentiment, with decades-high inflation sweeping across several economies including the United States, Europe e and parts of Asia. Equities able to withstand higher inflation How should investors position themselves in such an environment? Pricing power, which refers to a company’s ability to raise prices without losing customers, gives companies an advantage in the face of rising prices. These companies tend to withstand an inflationary environment better than their competitors because they can pass on higher costs to customers. Citi’s top publicly traded companies with the most pricing power include Estee Lauder, Kellogg, Chipotle and Domino’s Pizza in consumer, and Thermo Fisher Scientific and HCA Healthcare in healthcare. The bank also likes Amazon, Microsoft, Atlassian and CrowdStrike in the tech sector. A host of financial stocks also appeared on the bank’s screen, including Allstate Corp, MetLife and Hartford Financial Services. Citi also compiled a list of its “most compelling ideas” – the bank’s top stock picks. These include chemical company Linde, auto parts retailer AutoZone, Walmart, electronics maker Jabil, wireless carrier T-Mobile, cybersecurity company Fortinet and biotech company Apellis Pharmaceuticals. Semiconductor equipment maker Lam Research was also on Citi’s list, the stock with the biggest upside from the bank’s price target among the bank’s top stock ideas. The stock closed at around $389 in Tuesday’s trading, representing a potential upside of 85.1% from Citi’s price target of $720.
