This Sector Gets Hit Hard in a Bear Market – and Tends to Lead in a Bull Market

Some sectors of the stock market perform differently at different times. Commodity producers and utilities have held up somewhat well in the current bear market, even as tech stocks have been hit hard.

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  • Another area hit hard has been financial stocks, particularly banks. These companies have had to contend with rising interest rates. Demand for mortgages has stalled, which tends to be a big source of business, as well as mergers and acquisitions for big banks.

    That said, valuations for a number of these companies is starting to look overdone. Case in point is Citigroup (C), which has seen shares slide 25 percent in the past year.

    While that sounds steep, shares are also looking attractive at 7 times forward earnings. Plus, shares trade at just over 0.5 times their book value. It’s also attracting some investor interest, including that of Warren Buffett.

    Action to take: Investors may want to consider starting to buy shares here. The stock has a 25 percent profit margin, even in today’s stressful economic environment. And shares yield about 4.4 percent here, which pays investors well to wait for a rebound.

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  • For traders, the January 2023 $50 calls, last going for about $3.60, could turn a rebound in shares in the back half of the year into mid-double-digit gains. Traders may want to buy a starting position now, and use any market weakness to average into the trade.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.