The start of 2022 brought with it something that investors have not seen since the early days of 2020: wariness and fear. All major stock indices posted their biggest quarterly losses in two years in the first quarter of 2022 alone, including a 4.6% drop in the S&P 500 as well as a 9% drop in the Nasdaq Composite. The spring brought much-needed relief to the US stock market. The S&P 500 is up 3.6% during March, providing some semblance of recovery from a harrowing correction during the first two months of the year when stocks fell as much as 13% from their all-time highs. In this article, we will consider the most promising stocks to invest in, including financial stocks, oil and gas stocks, etc.
Prospective industries to invest in 2022
This year is not easy in every sense, as the world continues to experience a crisis caused by the coronavirus pandemic and political turmoil.
In such conditions, an investor will have to approach the choice of stocks even more carefully and outline promising industries for investment in advance. It is possible that the time of the “buy and forget” strategy is coming to an end.
Let’s consider the directions that could potentially be attractive for investors in 2022.
Financial sector
The financial sector is one of the most significant sectors that has a great impact not only on the US economy but also on the global economy as a whole. Since the middle of the last century, it has been actively developing and has turned from a sector designed to serve real production into an independent and dominant segment of the US economy. Today it includes a wide range of banks, non-banking financial institutions, investment funds, insurance, real estate companies, etc.
It is a well-known fact that rising yields on US 10-year treasury bonds are having a favorable effect on the financial sector, and most of all on banks. Research from Renaissance Macro on the sensitivity of each industry to changes in government bond yields confirms this fact. With the Fed starting to raise interest rates next year, we should expect 10-year yields to rise. For example, analysts at Wells Fargo expect a return of 2-2.5% by the end of the year.
The investor must take into account that this impact is not the same for all types of banks. Banks with a higher share of interest-free deposits and a higher percentage of floating-rate loans will look the strongest.
It is worth paying attention to such stocks as:
- Bank Of America (BAC);
- Wells Fargo (WFC);
- Comerica (CMA);
- M&T Bank (MTB);
- Regions Financial (RF);
- Citizen Financial (CFG).
Moreover, Bank of America has compiled a list of bank stocks whose quotes may rise along with the Fed’s interest rate. It included banks focused primarily on the domestic American market. Interest-rate-sensitive banks focused on the domestic market are likely to have more room to improve financial results, given investors’ caution towards international lenders, experts said.
According to Bank of America, the biggest beneficiaries of the rate hike cycle are:
- Citizens Financial Group (CFG);
- East West Bancorp (EWBC);
- M&T Bank (MTB);
- Signature Bank (SBNY);
- Synovus Financial (SNV);
- Wells Fargo (WFC).
Natural gas
The forecast of the US Energy Security Administration (EIA) indicates that natural gas will remain the main source of electricity in the US. Next year we can see a seasonal increase in prices at least to the maximum values of this year (Natural Gas Futures NG1).
It is worth paying attention to such stocks as:
- ConocoPhillips (COP);
- Coterra Energy (CTRA);
- Devon Energy (DVN);
- Range Resources (RRC);
- Antero Resources (AR).
Oil and gas service companies such as Halliburton (HAL) and Schlumberger (SLB) are usually the best performers in the face of rising US 10-year Treasury yields. High energy prices may also contribute to the growth of quotations.
Transporters like Kinder Morgan (KMI) and major natural gas exporters Cheniere Energy (LNG), Exxon Mobil (XOM), and Royal Dutch Shell (RDS.A) should also be on the lookout.
Analysts believe that the US will become the world’s top LNG exporter next year.
Food and fertilizers
The rise in the cost of food has reached its highest level in 60 years. Current fertilizer prices indicate that food prices may continue to rise next year. Moreover, many analysts predict that the next crisis could be food. Based on the correlation between the Invesco DB Agriculture Fund index and spot prices for ammonia fertilizers, it can be assumed that the index for agricultural commodities has the potential to continue moving up.
In this regard, you can pay attention to such stocks as:
- Archer-Daniels-Midland (ADM);
- Bunge Limited (BG);
- Tyson Foods (TSN).
Among fertilizer producers, buying opportunities may emerge in Nutrien (NTR) and Mosaic (MOS).
Biotech
Major players in the healthcare sector have amassed a significant hoard of cash during the pandemic, some of which will likely be used to purchase promising biotechs.
Analysts at Goldman Sach predict that the M&A market for biopharmaceuticals will be $617 billion in 2022, up 20% from 2021. Buyers are likely to focus on areas such as oncology, inflammation, and new technologies, including RNA interference and genome editing.
Biotech is a high-risk area, especially in the face of rising interest rates. The most likely scenario is a decline in the sector, which will make many companies even more attractive for takeovers. But investors should pay attention not only to stocks of potential M&A targets but also to those that could continue to develop independently in the face of tighter financial policies. The idea is to find the most viable biotechs after the bubble blows and capitalize either on their long-term growth or on buying from the pharma giants.
You can pay attention to:
- Alnylam Pharma (ALNY);
- Intellia Therapeutics (NTLA);
- Arrowhead Pharma (ARWR);
- Vir Biotechnology (VIR);
- Karuna Therapeutics (KRTX).
Final thoughts
Almost any investment strategy contains an optimistic view of the prospects for the US financial sector in 2022. However, investors can pay attention to other sectors, including biotech and food. It is more convenient to invest in stocks using innovative solutions. For example, the Gainy app is a great method to control your investments and discover new investment strategies. The goal of Gainy is to democratize analytics and research for retail investors and allow every individual to more effectively manage their investments.
