Connect with us

Business

The best-performing sector in 2022 is not finished crushing it, says Citi, offering three stocks to buy

News Agencies

Published

on

Will the equity superstars of 2022 continue to burn bright in 2023?

You can count on it, says our call of the day provided by Citigroup, though they say investors can’t expect as lofty returns.

“We see market rotation into energy equities as having further to run, even though names in our U.S. coverage already sit at all-time highs,” a team of analysts led by Alastair R Syme told clients in a fresh note. “History says energy equities usually perform well in an earnings recession, Citi’s base-case for 2023.”


Citi

That bullish view comes after energy roared back into the spotlight on Monday, providing at least some distraction from the equity market’s endless bear-bottom debates.

Hitting a level not seen since January, crude tumbled to $75.08 a barrel on rumors OPEC was mulling a production increase. A swift denial from Saudi Arabia pushed prices back near $80, where they are sitting for Tuesday.

Oil’s tumble also briefly knocked the year’s best performing energy sector, via the SPDR Energy Select Sector ETF 
XLE,
to four-month lows before it recouped some losses. The ETF is still up a whopping 62% this year, beating all comers.

To be sure, the path for the commodity backing those stocks is a murky one, with crude struggling to make new highs since a summer run to over $109 a barrel.

But Citi’s Syme and the team say they can look past the fundamental oil picture, for now.

“Our view on the sector comes despite a view that commodity-price inflation, the story of 2021 and early 2022, is now largely behind us. We expect oil markets to begin to see inventory builds from next spring. Gas remains uncertain during the winter, but generally, we think the global energy system is adapting to accommodate Europe’s crisis,” said Citi.

As for Citi’s view that energy equities perform well in a recession, they admit that the highest returns usually come in the first year of the market rotation. However, Syme said outperformance will typically carry on until the earnings cycle turns. They lifted price targets on several energy names and upgraded BP
BP
UK:BP
to buy.

“Without commodity price-inflation, growth and asset duration becomes a more important driver of relative equity performance, in our view,” said the analysts. Their three top picks in the energy sector are buy-rated BP
BP
UK:BP
— upgraded by Citi on Tuesday — Spain’s Repsol
ES:REP
REPYY
and ConocoPhillips
COP.

Citi backed up its BP upgrade with some advantages it sees: valuations that put it over European peers; a lack of chemicals exposure, which they see as a key headwind for global peers in 2023; and the potential to differentiate around underlying growth, driven by upstream and marketing.

Citi lifted its target price for BP to 540 pence from 440 pence a share, while ConocoPhillips’ target was lifted 21% to $160 a share. Among neutral-rated names, Chevron’s
CVX
target was lifted 16% to $180, Exxon’s
XOM
was lifted 12% to $110, Shell’s
UK:SHEL
SHEL
was boosted 9% to 2360 pence and Eni’s
IT:ENI
was lifted 16% to 14. Repsol’s targets were lifted 3% to €17..

Note, Citi’s economists do see the global economy continuing to lose steam with the U.S. tipping into recession by the third quarter of 2023 and Europe already there. The OECD also came out with its forecasts and not surprisingly, they were gloomy.

And they’ve got caveats for investors to consider when it comes to this dazzling sector. They say relative performance of energy stocks, while still positive, will start to diminish given that stocks have seen such a big run-up in 2022. Also, don’t get greedy, or “hold on too long,” said Syme and the team, who warned that when the demand-side collapse starts to really kick in, sector performance will start to suffer.

The markets


MarketWatch

Stocks
DJIA
SPX
COMP
are mixed, with bond yields
BX:TMUBMUSD10Y BX:TMUBMUSD02Y
slipping and the dollar
DXY
pulls back. Oil prices
CL
BRN00
are higher after Monday’s tumultuous session. Gold
GC00
and silver
SI00
prices are firmer, and bitcoin
BTCUSD
is slightly higher at $15,776.

The buzz

Saudi Arabia delivered the first World Cup upset, beating Argentina 2-1.

Dollar Tree
DLTR
shares are down after the retailer beat forecasts, but delivered downbeat guidance. Dell
DELL
is dropping after the PC maker’s weak forecast overshadowed an earnings beat. Zoom
ZM
also delivered upbeat results, but shares are down on disappointing guidance. HP
HPQ
will report after the close.

Baidu shares
BIDU
are rising after the Chinese internet giant delivered forecast-beating revenue. 

Lordstown Motors 
RIDE
and Nikola 
NKLA
are among several stocks that Goldman warns are burning through cash and may need to raise capital soon. The bank also points out that Microsoft has now overtaken Amazon as the stock with the most long hedge-fund positions.

Days after China President Xi Jinping spoke of redistributing wealth, JD.com
HK:9618
JD
said it would cut executive salaries by 10% to 15% to boost benefits for lower-level employees.

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

Best of the web

‘Say her name, Mahsa Amini’. Protests mark Iran’s World Cup debut

As western consumers cut back, Bangladesh’s garment industry is feeling the pain (subscription required)

A critical diesel fuel shortage is coming for everything and everyone

Hundreds dead, homes flattened in aftermath of Indonesia earthquake

The chart

On the ever-busy crypto beat, comes this grim market-cap chart from @lanceroberts:


Twitter

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

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

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 Automotive
APE AMC Entertainment preferreds
Random reads

Meet this cute lil’ 67-pound goldfish

Singing Italian nun leaves sisterhood, now waitressing in Spain

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

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

Continue Reading
Advertisement

Breaking News

Advertisement

Editor Pick’s

Latest Entertainment

Entertainment7 hours ago

Dua Lipa shares recording studio photos with Rolling Stones frontman Mick Jagger

Dua Lipa shares recording studio photos with Mick Jagger. (Photo: Michael Tullberg/Getty Images) Is there a Dua Lipa and Rolling...

Entertainment7 hours ago

Dwayne Johnson Says He’s Grateful for Thanksgiving with Family: ‘We Count Our Blessings’

LOS ANGELES, CALIFORNIA – NOVEMBER 03: (L-R) Ata Johnson and Dwayne Johnson attend the World Premiere of Netflix’s “Red Notice”...

Entertainment8 hours ago

Queen Elizabeth Knew Her Time Was Running Short, ‘Had No Regrets’ Before Her Death, Book Says

FEBRUARY 02: Queen Elizabeth II is photographed at Sandringham House to commemorate Accession Day, marking the start of Her Majesty’s...

Entertainment8 hours ago

Pregnant Chrissy Teigen and John Legend Celebrate Thanksgiving with Luna & Miles Ahead of Next Baby

chrissy teigen, john legend Chrissy Teigen/Instagram Chrissy Teigen and John Legend have lots to be thankful for this Thanksgiving. The...

Entertainment9 hours ago

Irene Cara, Oscar-winning ‘Flashdance’ singer and Fame star, dies at 63

Irene Cara, the Oscar-winning singer best known for performing the theme songs to the legendary films Flashdance and Fame, has...

Entertainment9 hours ago

Bob Dylan Says He ‘Regrets’ an ‘Error in Judgment’ in Selling Machine-Signed Art and Books: ‘I Want to Rectify It Immediately’

Bob Dylan issued a rare public statement Friday night to admit that he “regrets” having made “an error in judgment”...

Entertainment10 hours ago

Kimberly Stewart Shares Sweet Thanksgiving Photo of Her and Benicio Del Toro’s Daughter: ‘Thankful’

https://www.instagram.com/p/ChQLvZrPVdq/?hl=en. Kimberly Stewart/Instagram Kimberly Stewart/Instagram Kimberly Stewart celebrated Thanksgiving with her mini-me by her side. The actress, 43, spent the...

Entertainment16 hours ago

Madonna Shares Rare Snap With All Six Of Her Children As They Celebrate Thanksgiving Together

Madonna has revealed she had a lot to be grateful for this Thanksgiving after spending the day with all six...

Latest Sports

Sports1 hour ago

Nebraska signs Matt Rhule to 8-year deal as football coach

After six straight losing seasons and more than 20 years removed from its 1990s heyday, Nebraska is turning to Matt...

Sports1 hour ago

Jim Harbaugh discusses the origins of the trick play against Ohio State

Neither were the coaching staff, as head coach Jim Harbaugh told reporters after the game that the Wolverines had "emptied...

Sports2 hours ago

Ja Morant tweets about quiet Klay Thompson critics with Warriors’ star shining

Ja Morant doesn't usually side with the Warriors, but on Friday night, that changed.

Sports2 hours ago

Syracuse’s Judah Mintz ejected after slapping Bryant guard in the face, sparking wild altercation

Four players and three assistant coaches were ejected after Syracuse's Judah Mintz and Bryant's Doug Edert got into it early...

Sports3 hours ago

‘Ryan Day is playing checkers.’ Ohio State football loses to Michigan | Fan reactions

Here's how fans are responding to the Buckeyes' latest loss on social media.

Sports3 hours ago

Everything Jim Harbaugh said after Michigan’s win over Ohio State

Get an annual subscription to M&BR for only $22! Use code RIVALS22 On how proud he is of the teamSo...

Sports3 hours ago

World Cup 2022 scores, updates: Argentina vs. Mexico

Can Argentina bounce back after its shocking World Cup 2022 loss to Saudi Arabia?

Sports4 hours ago

Michigan State football game score vs. Penn State: Live scoring updates

Michigan State Spartans game time, TV/radio info, score, live updates and analysis as they play the Penn State Nittany Lions...

Technology Hot News

Is Elon Musk Really Going to Buy Twitter? Is Elon Musk Really Going to Buy Twitter?
Technology1 month ago

Is Elon Musk Really Going to Buy Twitter?

Elon Musk, the owner of the electric car company Tesla, CEO of SpaceX, and the richest man in the world,...

WhatsApp services were affected across Pakistan, restored after 2 hours WhatsApp services were affected across Pakistan, restored after 2 hours
Technology1 month ago

WhatsApp services were affected across Pakistan, restored after 2 hours

WhatsApp services were affected in various countries of the world, including Pakistan, and India due to this users were facing...

Bitcoin vs Litecoin: A guide to understanding cryptocurrencies Bitcoin vs Litecoin: A guide to understanding cryptocurrencies
Technology1 month ago

Bitcoin vs Litecoin: A guide to understanding cryptocurrencies

Cryptocurrencies currently occupy an odd place in society. They are no longer the super niche bizarre currency beloved by tech...

Personal data of people is selling on Google Play and Google Ads Personal data of people is selling on Google Play and Google Ads
Editor Picks2 months ago

Personal data of people are sold on Google Play and Google Ads

It’s been two to three years since Google has been unknowingly hosting multiple apps from malicious actors who sell personal...

Protonmail is down a second time in the past 24 hours Protonmail is down a second time in the past 24 hours
Technology5 months ago

Protonmail is down a second time in the past 24 hours

An end-to-end encrypted email service Protonmail is down a second time in the past 24 hours, netizens reported on social...

What's better for the student: a tablet or a laptop What's better for the student: a tablet or a laptop
Technology6 months ago

What’s better for the student: a tablet or a laptop

Some analysts argue that computers have outlived their usefulness. There is some truth in this: PC and laptop sales are...

Tesla founder Elon Musk holds the Twitter deal temporary Tesla founder Elon Musk holds the Twitter deal temporary
Technology7 months ago

Tesla founder Elon Musk holds the Twitter deal temporary

USA: Elon Musk, the founder of companies like Tesla and SpaceX, can actually buy anything in the world. Last month,...

How Zafar Supari is utilizing his ability on Snapchat? How Zafar Supari is utilizing his ability on Snapchat?
Technology7 months ago

How Zafar Supari is utilizing his ability on Snapchat?

Pakistan: Zafar Supari a public figure, businessman, and social media sensation has crossed one hundred thirty-three thousand 133k subscribers on...