10 stocks that should shine in a 2023 recession: Citi

As the risk of a recession approaches,


citi

The group has produced a 30-stock screen to help investors find opportunities during the second half of 2022.

Stocks have rallied in recent weeks with major indices climbing double digits from their June lows. the


S&P 500

is up 10% since the end of June, bringing it closer to that of Citi reviewed year-end target of 4,200. The market has been focused on macro risks such as inflation, but is nearing a recession resolution, Citi analyst Scott Chronert said in an Aug. 5 note. He expects a mild recession during the first half of 2023, while Citi economists are modeling a recession during the second half of that year.

Because of this, investors may want to consider individual stocks with strong growth histories, Chronert said in the note.

Chronert said he expects higher valuations as the Fed exits its current hawkish trend towards the end of 2022. This means that as we get closer to a recession, the Fed is more likely to start to relax. When that happens, price-earnings multiples can rise, Chronert said. β€œIn that environment, we are suggesting thematic names that may work well under the premise that the market will look to structural growth features to navigate a downturn effect,” Chronert said. Barron’s.

Citi produced a screen, “The Top Thirty: Stock Pick Opportunities for 2H” that lists the top 30 large-cap stocks, all buy-rated, that are associated with themes, which can help investors identify the next group of growth stocks. Stocks in these themes tend to have stronger revenue and earnings growth profiles, as well as higher margins, relative to the index average, according to the Aug. 5 note.

For this screen, Citi narrowed the topics down to six: Automation/Robotics; internet-driven business models; Artificial intelligence; Emerging Manager, Major Brands; Y net zero. The bank looked for above-average earnings growth, but ruled out poor-quality, positive or stabilizing review trends, according to the note.

Topping the list is General Motors (ticker: GM), which appears in seven themes, including Automation/Robotics. GM shares are down 36% this year, but top the Citi list with an estimated total return over the next 12 months of 142.5%. GM rose more than 4% on Monday to close at $37.57.

Next up is MGM Resorts International (MGM). The stock appeared in five issues, including EM Consumer. MGM shares are down 23% year-to-date, but ranked second on Citi’s list with an estimated 65.5% total annual return. The shares fell 21 cents to close at $34.50 on Monday.

Third is


nvidia

(NVDA) with an estimated annual return of 51.4%. On Monday, the chipmaker shared preliminary second-quarter financial results that were below expectations. This caused its shares to fall more than 6% to close at $177.93 on Monday. Nvidia was featured in eight topics, including Artificial Intelligence. The shares are down 41% this year.


stock reservation

(BKNG), owner of KAYAK, Priceline.com, Booking.com and OpenTable, offers online hotel, vacation rental and flight reservations. The stock is down 18% this year. Booking appears in five different topics, including Internet-based business models. It ranks fourth on Citi’s screen with an estimated annual return of 45.2%. Monday’s shares rose nearly 2% to close at $1,955.80.

In fifth place is


IPG Photonics

(IPGP), which manufactures fiber lasers and amplifiers that are used in different industries, such as telecommunications and medical. The stock had dropped about 41% this year. IPG Photonics was featured in three themes, including Automation/Robotics. Its estimated annual return is 43.5%, Citi said. The stock gained 32 cents to close at $102.16 on Monday.

Actions of


walt-disney

(DIS), the media company, are down more than 29% this year. Disney competes against rivals like


Netflix

(NFLX) and


Apple

(APPL) in streaming, but most of its profit potential lies in its theme park segment. Disney touched on five themes, including top brands. It ranks sixth with an estimated annual return of 36.1%. The stock rose more than 2%, closing Monday at $109.11.

In the past week,


amazon.com

(AMZN) said it would buy Roomba maker


I robot

(IRBT) for $1.7 billion. The e-commerce giant was featured in six Citi issues, including Automation/Robotics. Amazon.com shares are down more than 16%, but are seventh on Citi’s screen with an estimated 31.3% annual return. Shares on Monday were down 1% to close at $139.41.


Metaplatforms

(META) has seen its shares fall about 49% this year. Formally known as Facebook, Meta appeared in nine topics, the most of any company in the top 10. Meta’s estimated annual return is 31.2%. The shares rose more than 3% to $170.25 on Monday.

In the past week,


PayPal
‘s

(PYPL) reported second-quarter earnings that came ahead expectations, but the stock is still down 49% this year. Fintech is featured in eight Citi themes, including internet-driven business models. Its estimated profitability in the next 12 months is 27.7%, which places it in ninth place on the screen. The shares rose 1% to $96.21.

There is also Domino’s Pizza (DPZ), which manages a network of its own and franchised pizzerias. Two weeks ago, Domino’s reported second quarter results that they mixed. The stock is down 30% this year. With an estimated annual return of 23.5%, Domino’s ranks 10th on Citi’s screen. The shares rose 2% to $394.89 on Monday.

Write to Luisa Beltran luisa.beltran@dowjones.com

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