This quarter’s worst-performing sector could make a comeback in the new year, one trader says.
The final three months of 2021 have been volatile for U.S. stocks as heightened concerns around the Covid omicron variant and inflation risks sparked more regular swings in the major indexes.
Communications stocks have lagged the rest of the S&P 500, but a return to growth could make them 2022’s “sneaky catch-up plays,” Inside Edge Capital Management founder Todd Gordon told CNBC’s “Trading Nation” on Wednesday.
“We’re seeing growth come ripping back” after roughly a year of investors opting for value, Gordon said.
“I think we will see a move higher next year and I think tech is rotating back in, specifically large cap,” he said.
Consumer discretionary and communications stocks could also benefit, Gordon said.
“I don’t think the inflation argument, rotation into value, looking for yield is here to stay. I think inflation’s transitory,” he said. “I think one of the sneaky catch-up plays … is going to be communications next year. I’m looking at two particular stocks that I’d like to up exposure in: Netflix and Roblox.”
After three years of strong annual returns, 2022 is likely to be a more volatile year for markets, Tocqueville Asset Management portfolio manager John Petrides said in the same interview.
“I do think domestic stocks will outperform in 2022 and that’s going to continue I think until the U.S. 10-year gets to about 3% or so because there’s really no other competing asset classes” that are publicly traded, he said.
His 2022 strategy took the other side of the low interest rate trade, favoring dividend plays, particularly real estate investment trusts involved in industrial and medical office properties.
“I think the fundamentals are very strong in these subsectors,” Petrides said. “These are companies that can grow their dividend, pay out a high dividend yield, particularly in the medical office property space, and in an inflationary environment, the landlord can adjust rents higher, so I think that gives the REITs some pricing power so there’s a sector to be in I think for ’22.”
Disclosure: Inside Edge Capital Management owns shares of Netflix and Roblox.
