KBW's best trades for 2023, including a short bet against Coinbase

Published Fri, Jan 6 20232:24 PM EST

Investors are on the lookout for new opportunities to recover from a brutal year for stocks, and Keefe, Bruyette & Woods has identified several ideas for the year. Despite it being a new year, uncertainty continues to loom over the market as traders wonder how much longer and higher the Federal Reserve will continue its inflation-fighting rate hike plan and if it will be able to tame high prices without tipping the economy into a recession. Many investors have said the market has to get through the first half of the year at least before they're out of the woods. Until then, there's more volatility to endure. In the meantime, KBW has shared a list of several names to trade in 2023, many of which are short bets. Perhaps the most high-profile name on the list is Coinbase – and the firm has it down as a short bet, thanks to deteriorating volumes and regulatory overhang. The cryptocurrency services firm suffered in 2022 as the crypto market not only tumbled with other risk assets broadly, but took additional blows as its competitor, FTX, collapsed. KBW analyst Kyle Voigt said in a note this week that retail volumes are still normalizing after the crypto contagion and that, thanks in part to FTX, new account growth slowing as investors are more wary about entering or returning to crypto investing. On top of all that, he said, regulatory risk is growing. The firm has an underweight rating on Coinbase and a price target of $37. It's also underweight Rocket Companies , another tech company and the operator of the Rocket Mortgage app. Its price target of $6 is 18% below its Thursday closing price. "Mortgage banking remained under pressure in 2022 and earnings estimates fell sharply over the course of the year," analyst Bose George said. "RKT continued to lose share as the refi market contracted meaningfully and the purchase market, where RKT has limited retail presence, became the main source of mortgage volume." Traditional financial companies made up most of KBW's overweight picks, however, including Allstate and U.S. Bancorp. The firm's price target on Allstate is 11% above where the stock closed Thursday. KBW cited rapid fixed income portfolio upside from higher interest rates. It also said personal lines rate increases should support underwriting margin expansion and pointed to a capital position that "should support" sustained share repurchases. U.S. Bancorp , meanwhile, has upside potential of about 27%. It's trading at a deep discount to historical valuations and Union Bank has big earnings power thanks to higher rates. —CNBC's Michael Bloom contributed to this report.

The logo for Coinbase Global Inc, the biggest U.S. cryptocurrency exchange, is displayed on the Nasdaq MarketSite jumbotron and others at Times Square in New York, U.S., April 14, 2021.

Shannon Stapleton | Reuters