Citi suggests three stocks to buy in 2022, saying the best-performing sector isn’t done crushing it.


You can count on it, says our call of the day It is provided by Citigroup, although investors cannot expect high returns.

A group of analysts led by Alastair R Syme said in a fresh note to clients that “while the names in our US coverage are now at all-time highs, we see the market’s turn towards energy stocks to continue.” “History suggests that energy stocks typically do well in an earnings recession, which is Citi’s prime example for 2023.”

Citi

The bullish outlook comes after energy came back into the spotlight on Monday and at least distracts from the stock market’s endless bearish debates.

Crude oil fell to $75.08 a barrel, a level not seen since January, on rumors that OPEC is considering raising production. Saudi Arabia’s swift rebuttal pushed prices back to near $80, where they sat for Tuesday.

Oil’s decline also briefly derailed the year’s best-performing energy sector through the SPDR Energy Select Sector ETF XLE.,
it fell to a four-month low before recovering some losses. The ETF is still beating all comers, up a whopping 62% this year.

To be sure, the road ahead is bleak for the commodity backing these stocks, with crude oil struggling to reach new highs after breaking above $109 a barrel since the summer.

But Citi’s Syme and team say they can look ahead to the underlying oil picture for now.

“Our outlook for the sector comes despite the view that the commodity price inflation of 2021 and early 2022 is now largely behind us. We expect oil markets to start seeing inventory growth starting next spring. Gas remains uncertain over the winter, but overall we think the global energy system is adjusting to Europe’s crisis,” Citi said.

As for Citi’s view that energy stocks have done well in a downturn, they acknowledge that the highest returns typically come in the first year of a market turnaround. However, Syme said the outperformance will typically continue until the earnings cycle turns. They raised price targets on several energy names and upgraded BP BP

Great Britain: BP
get

“Commodity prices—without inflation—growth and asset duration are becoming more important drivers of relative equity performance in our view,” the analysts said. Their top three picks in the energy sector are BP BP
Great Britain: BP
— upgraded by Citi on Tuesday — Spain’s Repsol ES:REP

REPYY
and ConocoPhillips COP.

Citi backed BP’s upgrade with some of the advantages it sees: valuations that put it ahead of its European peers; No exposure to chemicals, which they see as a headwind for their global peers in 2023; and differentiation potential around upstream and marketing-driven core growth.

Citi raised its target price for BP to 540 pence from 440 pence a share, while ConocoPhillips rose 21% to $160. Among the neutral-rated names is Chevron’s CVX
The target was lifted 16% to $180 on Exxon’s XOM
Up 12% to $110, Shell’s UK:SHEL

SHELL
It rose 9% to 2,360 pence and Eni’s IT:ENI
raised to 16% 14. Repsol’s targets were increased by 3% to 17 euros.

Notably, Citi economists see the global economy continuing to lose steam, with the US entering recession in the third quarter of 2023 and Europe already there. The OECD also came out with its own forecasts, and unsurprisingly, they were gloomy.

And investors have caveats to consider when it comes to this dazzling sector. They say that while the relative performance of energy stocks is still positive, given that stocks have seen such a large increase in 2022, it will begin to decline. Also, don’t get greedy or “hold on too long,” as Syme and the team warn that the sector’s performance will begin to deteriorate once the demand-side collapse really kicks in.

Markets

MarketWatch

Stock futures ES00

YM00

NQ00
bond yields and the dollar DXY rise slightly as the exchange rate falls
pulls back. Oil prices CL

BRN00
slightly higher after Monday’s tumultuous session. Gold GC00
and silver SI00
prices are more stable and bitcoin BTCUSD
it is slightly more expensive and amounts to 15,776 dollars.

Buzz

Saudi Arabia beat Argentina 2-1 to win their first ever World Cup.

Dollar Tree DLTR
Shares fell after the retailer beat forecasts but gave bearish guidance. Dell DELL
The PC maker’s weak outlook falls after it overshadowed an earnings beat. Zoom ZM
also delivered good results, but the stock is down from disappointing guidance. HP HPQ
will report after closing.

Baidu shares BIDU
Chinese internet giant rises after earnings beat forecasts.

Lordstown Motors RIDE
and Nikola NKLA
It is among several stocks that Goldman has warned are flush with cash and will need to raise capital soon. The bank also notes that Microsoft has now overtaken Amazon as the stock with the longest hedge fund positions.

Days after Chinese President Xi Jinping spoke of wealth redistribution, JD.com HK:9618

JD
said it would cut executive pay by 10% to 15% to increase benefits for lower-level workers.

A speech by Kansas City Fed President Esther George is the only economic note for Tuesday.

The best of the web

“Say your name, Mahsa Amini.” The protests are related to Iran’s World Cup debut

Bangladesh’s garment industry feels the pain as Western consumers decline (subscription required)

A critical shortage of diesel fuel is coming for everything and everyone

As a result of the earthquake in Indonesia, hundreds of people died and houses collapsed

Graph

In the ever-busy cryptocurrency, this comes from a terrific market cap chart @lanceroberts:

Twitter

Read: Bitcoin sinks to fresh lows and Grayscale trust discount worsens as Genesis denies imminent bankruptcy

Tickers

These were the most searched tickers on MarketWatch as of 6am:

Ticker

Security name

TSLA

Tesla

GME

GameStop

AMC

AMC Entertainment

NIO

Nio

AAPL

apple

AMZN

Amazon.com

BBBY

Bed Bath & Beyond

MMAT

Meta Materials

MULN

Mullen Car

APE

Preferred by AMC Entertainment

Reads casually

Meet this adorable 67-pound goldfish

An Italian nun who studied left her sisterhood and now works as a waitress in Spain

Need to know starts early and is updated until the opening bell, but sign up here to get it delivered to your inbox once. An email version will be sent at 7:30 AM Eastern.

Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passey and economist Stephanie Kelton





Source link