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Growth stocks have been hit hard by a combination of rising rates and forecasts of an impending recession. But rather than pivoting toward an entirely defensive portfolio, Citi says investors might do better with a portfolio of stocks ranked high for value, growth and defensiveness simultaneously. Citi named U.S.-listed IT giant Accenture , trucking company Old Dominion and U.K.'s online car portal Auto Trader as "low risk, quality and growth" stocks. The Citi analysts said they screened the MSCI World index of 1,500 stocks for companies in the top quantiles for growth, low risk and quality simultaneously. "There are also several months where there is no overlap at all for value and in the past year the overlap of growth and defensive stocks has dropped from 25 to around 5," the analysts added.
But when they do, Swiss bank UBS has identified stocks in the MSCI Europe index that will do better than others "in an environment where China's growth rebounds." The investment bank screened for companies in Europe that meet the following criteria: A high percentage of sales exposure to China. The stocks in the table below have been ranked using UBS' composite score, which brings together the above factors. London-listed engineering groups IMI and Weir Group and Asia-focused bank Standard Chartered were among the top 15 stocks with high exposure to China, according to UBS. According to UBS, shares of chemicals and specialty materials companies BASF , Solvay , Arkema and Sika are also exposed.
Shares of energy companies could surprise markets and continue to rise, according to Goldman Sachs' head of commodities research, despite a recent fall in crude prices. Jeff Currie told CNBC that historically, stocks in the sector have traded at a higher premium to crude oil prices compared to current price levels . "There is a catch-up game going on between oil prices and ... equities," Currie said Tuesday. Spot oil prices and energy stocks tend to move in tandem. OPEC+ has recently hinted it could impose deeper output cuts to spur a recovery in crude prices .
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Many global companies are heavily exposed to China, including some of the world's biggest automakers, which generate between 20% and 40% of their worldwide sales in the country, according to Goldman Sachs. Goldman Sachs has a $305 price target on Tesla, giving it potential upside of around 66% from its current share price of around $182. Mercedes-Benz Goldman Sachs estimates that Mercedes will sell 734,000 cars this year in China. Meanwhile, Volkswagen's joint-venture partner SAIC is sell-rated by Goldman Sachs, which gives it downside potential of 9%. General Motors Goldman Sachs estimates that nearly half of all cars GM sells worldwide will be in China between 2022 and 2024.
Shares of mass market retailers will fall as profit margins are squeezed, and consumers curtail spending next year, according to Plurimi Wealth's chief investment officer. Selling shares "short" means borrowing shares through a broker to sell them immediately with a plan to repurchase them when the price is lower. In such an environment, mass market retailers that benefit from discretionary spending will see their revenues decline. While investors are split over the health of the American consumer, European shoppers are mostly expected to curtail their spending habits next year. Elsewhere in Europe, economists are also expecting a recession for the first half of next year that will impact discretionary spending.
The U.K. commercial property sector has become a "toxic environment" for investors, according to Plurimi Wealth's chief investment officer. Shares of British Land and Land Securities have fallen by 23.1% and 18.5% this year, respectively. With U.K. government bonds offering a yield of about 3%, commercial property valuations have fallen to compensate for a rise in yields above sovereign gilts. British Land now offers a yield of 7.1%, a full percentage point above its long-term average, according to UBS. The investment bank suggests that with every 0.5 to 1 percentage point rise in yield, values fall by 15-20%.
There's more pain to come for investors in British grocery technology company Ocado , according to short seller Chris Dale. The chief investment officer at Kintbury Capital expects Ocado's shares to fall a further 45% from Wednesday's close of £6.60 down to about £3.75 ($4.52) a share. The short interest in Ocado has risen to more than 4% of its stock in recent months after a two-year lull. AHL Partners, AQR Capital, Gladstone Capital and D. E. Shaw & Co. are the other firms currently holding a significant short position in Ocado. Earlier this month, Ocado's shares soared by 32% after a new deal to construct six CFCs for South Korea's Lotte Shopping was announced.
Strategists at Morgan Stanley on Nov. 17 compiled a list of 63 institutions that may be exposed to losses or have their capital stuck on FTX's platform. The below table shows 19 of the companies identified by Morgan Stanley as having significant exposure to FTX. Of the 19 companies listed, 15 have confirmed some exposure to FTX (although figures may differ from Morgan Stanley's estimates). Temasek, the Singaporean state-owned holding company, said it had invested more than $200 million in FTX and FTX's U.S. subsidiary. Morgan Stanley also named Ledn, BlockFi, Amber Group, Skybridge Capital and Selini Capital as among the funds with potential exposure to FTX, but where values had not been disclosed.
Goldman Sachs says the current rally in global stocks is temporary, forecasting a market bottom in 2023. By December 2023, Goldman Sachs expects the S & P 500 to rise to 4,000 points — that's just 0.9% higher than Friday's close. Goldman's prediction is similar to Morgan Stanley's call on the S & P 500. Its Chief U.S. Equity Strategist Mike Wilson expects the S & P 500 to rise to 3,900 by the end of next year. Goldman said it was more concerned over the potential "damage" from the speed of interest rate hikes this year — from 0.25% to 3.75%-4% — than the actual rate.
There will be winners and losers at this year's FIFA World Cup — both in the stadium and stock market. Aviation fuel provider Qatar Fuel and hotel operator EMAAR Properties also made the bank's list of beneficiaries. But risks remain for investors, highlighted by the Qatari government's last-minute ban on sales of all beer at and around World Cup stadiums. Qatar Fuel, the exclusive jet fuel supplier in Qatar, will likely benefit from the World Cup almost immediately. The World Cup won't just benefit consumer companies in Qatar and the surrounding region, but the world over.
This year's 30% decline in the value of Chinese Big Tech stocks, such as Alibaba , has made them "incredibly cheap," according to investment bank China Renaissance. "We saw body blow after body blow when it came to that regulatory environment," Maynard told CNBC Friday, speaking from Hong Kong. According to Maynard, major global long-only investors, which dominate the Hong Kong stock exchange, now view large-cap tech stocks such as Alibaba, Meituan , Tencent and as "very deeply undervalued." Its Hong Kong traded shares ended the day up over 2% Friday, although its New York-listed shares were in the red after rising 7.8% the day before. However, Maynard cautioned that investors who ignore Chinese technology stocks would likely miss out on significant returns in the future.
While hedge fund Muddy Waters revealed a bet against payment processor dLocal , other short sellers appear to be eyeing several fintech companies. S3 Partners examined 66 stocks in the FINX fintech ETF for CNBC Pro and found $15.25 billion betting against the basket of stocks in total. Others might see structural headwinds for a company before it is fully reflected in the share price. Coinbase had a total of 27.53 million shares – or 18% of free-floating shares – betting against the share price. The fintech company, led by Twitter's co-founder Jack Dorsey, has seen its shares decline by 56.94% over this year.
"The concept of pivot is dead," Salman Ahmed, Fidelity's global head of macro and strategic asset allocation, told CNBC Pro Monday. Ahmed said that equities would be unlikely to benefit even if the Federal Reserve stops hiking rates at the current level. Investors have moved on to question whether the Fed might be forced to pivot away from historically high rates, and even start cutting next year, given recession risks. "It's now about how long the Fed can keep the policy in a very restrictive stance," Ahmed added. According to Ahmed, government and investment-grade corporate bonds are some of the cheapest asset classes available now that offer risk-free returns.
Legendary investor Warren Buffett may have overpaid for his latest investment in chipmaker Taiwan Semiconductor , according to one equity analyst. Buffett's Berkshire Hathaway bought more than 60 million shares of TSMC worth $4.1 billion (1.2% of TSM) in the third quarter, according to a quarterly regulatory filing . New York-listed shares in the chip stock rose 5.8% in after-hours trading to $77.08. Blank said Buffett, 92, was not as interested in buying the bottom as other investors, given Berkshire Hathaway's long-term investment horizon. The median price target of 30 analysts covering TSMC indicates a 29.8% potential upside from its share price prior to Buffett's investment, according to FactSet.
With many stocks in a bear market, equities could be undervalued by 15%, according to Morningstar's chief U.S. strategist. Dave Sekera told CNBC last week that markets are overestimating the impact of inflation on the U.S. economy, leaving many stocks below their fair value. The S & P 500 rallied 5.9% last week for its best week since June , although stocks fell slightly Monday. It gives Zimmer Biomet 51.4% potential upside, Amazon upside of 48%, Salesforce 52% upside, ServiceNow upside of 57%. Morningstar analysts also believe 3M is a "cheap stock" trading at $133 and expect shares to rise by 37.6% to $183.
After a year of double-digit inflation in many countries, UBS is now forecasting "sharp" disinflation in 2023. The bank screened for stocks it expects to be positively impacted in such an environment. The table below shows two stocks across four regions that UBS says will benefit the most from disinflation. British healthcare companies Genus and Hikma Pharmaceuticals ranked highly among the stocks UBS says will benefit from disinflation in the United Kingdom. "The negative payoff from getting our disinflation call wrong is large," strategists led by Arend Kapteyn warned.
One key thing is needed for a rally in bitcoin prices, according to Michael Howell from Cross Border Capital: liquidity. "They're completely connected," he said and warned investors that prices will likely fall further in the near term. "We have maximum liquidity tightness right now, and central banks are actually thinking about squeezing even more." Bitcoin rally Howell believes cryptocurrencies are "extremely liquidity sensitive" and might be one of the first indicators of changing conditions in financial markets. He added that as soon as central banks pivot away from monetary tightening, assets — including bitcoin — "will see a very sharp rally.
Analysts expect the dollar to decline against 18 out of 38 currencies in the fourth quarter of this year, according to FactSet data. UBS UBS considers selling the dollar against G-10 currencies being a "top investment idea for 2023." According to the investment bank, years of negative interest rates have led to a sizeable un-hedged buildup of dollars worldwide. BCA Research Analysts at BCA Research say from a technical standpoint, the dollar is due for a reversal. Goldman Sachs The Wall Street bank remains bullish on the dollar over the next three months and sees certain G-10 currencies only recovering beyond the six-month horizon.
Earnings calls — and specifically the questions asked by analysts on the calls — are a better predictor of a stock's performance than management's remarks, research by investment bank Nomura revealed. "This suggests a connection between analyst sentiment and price momentum around the earnings call." One was based on analysts' sentiment from the earnings calls, and the other was based on management's sentiment. But the portfolio measuring analyst sentiment beat the management sentiment portfolio by about 25 percentage points. Third-quarter earnings calls for S & P 500 companies that took place until Nov. 4 were compared against earnings calls of the same period last year.
But rising interest rates have drawn investors away from bullion by raising the opportunity cost of holding the zero-yield asset. Spot gold was trading around $1,676 an ounce on Monday, and UBS sees prices hitting $1,900 an ounce by the end of 2023. In a note to clients on Nov. 7, UBS said gold prices have historically tended to rally 19% for every 1% cut in real rates. A "real rate" is an interest rate that has been adjusted to remove the effects of inflation. UBS also pointed toward support for gold prices caused by demand from institutional investors.
Morgan Stanley expects shares in Asian battery component maker L & F Co to rally by 81% by the end of next year. Morgan Stanley maintained its price target and rating on the stock despite the delays to the U.S. joint venture. L & F, which also supplies battery materials to SK Innovation, LG, and Samsung , said it intends to resubmit its application to the South Korean government in the fourth quarter. Equity analysts at Jefferies have a buy rating and 370,000-won price target on the stock, implying a 67% upside. "L & F team has not seen any order slowing from key end customer (TSLA) and expects a continued sequential increase in the next two quarters," Kown said in a note to clients on Oct. 16.
Morgan Stanley said Japanese biotech firm SanBio 's stock could rise by 398% in the next year. The bank has a price target of 4,100 yen ($28) on the stock, which closed at 824 yen Thursday. Morgan Stanley's bullish take on the stock, outlined in a note on global equities to clients on Oct. 28 , comes despite a delay in the approval of the company's traumatic brain injury treatment. However, equity analysts covering the pharmaceutical sector at Nomura, Japan's largest investment bank, remain confident that the treatment will be approved. Morgan Stanley's analysts also said the company will raise sufficient capital in its latest funding round and won't require further cash injection from shareholders.
As Wall Street banks cut share price targets across the board this earnings season, only a handful of companies have bucked the trend, an analysis by CNBC Pro reveals. About 20 stocks emerged with a meaningfully higher price target of 5% or more compared to a month ago. Of these, only 13 still offer a potential upside of at least 5% to their current share price . The median price target for SLB represents a 13.5% upside potential, according to FactSet data. Loews Corp was excluded from the analysis as price targets or estimates were unavailable during the analysis.
Oil and commodities are "the best bet" when it comes to hedging against inflation, rising interest rates and geopolitical risk, according to Goldman Sachs' Jeff Currie. "Oil and commodities are the best hedge for the environment that we're in right now," Currie said. "They're the best hedge against inflation, as well as the best hedge against rising interest rates. And they're also the best hedge against geopolitical risk. "I think the key point here is, if you're looking to hedge those risks, oil and commodities are your best bet."
Citi says BYD is one of its "top" buy ideas among Chinese stocks and expects shares in the automaker to soar by more than 260% over the next 12 months. Jeff Chung, an equity analyst at Citi, reiterated his buy rating and price target on the stock after the company announced earnings on Oct. 28. Chung's price target for BYD is significantly higher than other analysts'. The median price target from six analysts covering the stock gives the stock a potential upside of 60.8%, according to FactSet data. Citi analysts recommended investors in China adopt a "barbell strategy" — a mix of conservative stocks to protect against downside risks and "high-conviction growth stocks" — in their base case scenario.
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