Citi names its ‘highest conviction ideas’ for the second half of 2022 — and gives one upside of 85%

Published Wed, Jul 6 20228:42 PM EDT

Citi has named a raft of stocks it thinks could do well in the second half of 2022, as investors continue to navigate market uncertainty and hot inflation. Stock markets suffered steep losses in the first six months of this year as an unrelenting sell-off brought major indexes to their knees. The S & P 500 endured dizzying swings before closing the first half in bear market territory, sending the index to its worst first half performance since 1970. With the second half now underway, investors are gearing up for continued volatility as recession fears mount. That has put stock picking in focus, according to Citi. "Although the equity market is likely to remain in the grips of macro considerations, stock specific differentiation will be a critical focus," Citi's strategists, led by Scott Chronert, said in a report on Jun. 29. "We expect business models to be tested," they wrote, stressing the ability of companies' management to navigate an array of issues such as labor and supply chains. Read more ‘Dividend aristocrats': Strategists name high-yielding stocks to ride out a bear market Wall Street believes these beaten-down global stocks are set for a rebound Wall Street banks name their top global stocks for the second half — and give three over 70% upside Chronert acknowledged rising recession risks and placed the odds of a global recession at 50%. Recession is most likely a 2023 event — if it transpires, he said. Meanwhile, soaring consumer prices continue to weigh on investor sentiment, with decades-high inflation sweeping across several economies, including the U.S., Europe, and parts of Asia. Stocks that can weather higher inflation How should investors position in such an environment? Pricing power, which refers to a company's ability to raise prices without losing business, gives firms an edge amid rising prices. Such companies tend to weather an inflationary environment better than competitors because they can pass on higher costs to customers. Citi's top picks of buy-rated companies with the most pricing power include Estee Lauder , Kellogg , Chipotle and Domino's Pizza in the consumer space, as well as Thermo Fisher Scientific and HCA Healthcare in the healthcare space. The bank also likes Amazon , Microsoft , Atlassian and CrowdStrike in the tech sector. A host of financial stocks turned up on the bank's screen as well, including Allstate Corp , MetLife and Hartford Financial Services. 'Highest conviction' names Citi also compiled a list of its "highest conviction ideas" — the bank's top stock picks. They include chemicals firm Linde , automotive parts retailer AutoZone , Walmart , electronics manufacturer Jabil , wireless operator T-Mobile , cybersecurity firm Fortinet and biotech firm Apellis Pharmaceuticals . Semiconductor equipment manufacturer Lam Research also featured on Citi's list, with the stock enjoying the highest upside to the bank's price target among the bank's top stock ideas. The stock closed at around $389 in Tuesday trading, which represents a potential upside of 85.1% to Citi's price target of $720.