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S&P 500’s best performing stocks in H1: Occidental and Hess

With the Federal Reserve forecasting further interest rate hikes for July, the likelihood of a recession in the US economy appears to be increasing. Stock markets are officially in bear territory, but the food and energy sectors are bucking the trend. Occidental Petroleum and Hess were the index’s best performers in the first half of the year, while General Mills and Domino’s topped the chart in June.

June has been disastrous for the stock market, with ongoing selloffs and recession fears rocking investor confidence after a difficult first half of the year. The end of the month was the S&P 500’s worst H1 in more than 50 years. The index is down 20.5% since the start of the year (through 30 June), falling 8.4% in the month of June alone.

The S&P 500 fell into a bear market after the US Federal Reserve hiked up interest rates. On 15 June, the Fed raised rates by 0.75%, its third increase this year and the biggest since 1994. Other major US indices have not fared much better, with the Nasdaq and Dow Jones also finishing the month in negative territory and all three indices posting two consecutive quarters in decline.

However, a few stocks did manage to buck the overwhelming downwards trend, mainly in the energy sector, including Occidental Petroleum [OXY] and Hess [HES], as well as big food names like Domino’s [DPZ] and General Mills [GIS].

Occidental and Hess top the index in H1

Amid all the stock market chaos, it’s been a good year for energy stocks, driven by higher oil and gas prices and the post-pandemic recovery in demand.

At the half-year point, Occidental Petroleum is the best-performing S&P 500 stock, up 103.9% year-to-date to 30 June. The Texas-based company has rallied alongside soaring energy costs, and also benefited from reporting a promising Q1 earnings report. Warren Buffett’s Berkshire Hathaway has been snapping up shares in the company, with a recent filing revealing that Berkshire now owns a 16.4% stake and Truist analyst Neal Dingmann speculating that Buffett may want to buy the whole company.

Among the 10 analysts polled by Yahoo Finance, there’s a consensus estimate that Occidental will announce revenues of $37bn in 2022, which would represent a 42% jump from the $26bn reported last year. At CNN Money, 24 analysts offering 12-month price forecasts on OXY have a median target of $75, which is a 27.4% increase from its 30 June closing price of $58.88.

Close behind Occidental is Hess, another oil company, headquartered in New York. The stock has grown by 44.1% year-to-date as of 30 June, with analysts predicting further increases ahead.

Factors driving its uptrend include the announcement during its Q1 earnings in April that it had located new discoveries 120 miles offshore of Guyana. The company says that this represented “additional multi-billion barrel unrisked exploration potential”. 

Hess forecast that its portfolio could decrease to a Brent oil price of approximately $45 per barrel by 2026, which would mean crude oil prices above $45 will be profit only.

For 2022, analysts polled by Yahoo Finance estimate Hess’ revenues will reach $11bn, which would be a 45% increase from $7.6bn in 2021. 

CNN Money reports that a consensus of 22 analysts offering 12-month price forecasts for Hess have a median target of $137.50. This would be a 29.8% jump from its close on 30 June of $105.94.

Domino’s and General Mills outperform in June

The top performer in the month of June alone in the S&P 500, according to Finscreener, was multinational food producer General Mills [GIS], which manufactures and markets well-known brands such as Häagen-Dazs and Cheerios. Its stock rose 8% over the course of the month and a consensus of 21 analysts at CNN Money rate it a ‘hold’. While rising inflation may mean that some households have to cut back on groceries and food spending, General Mills posted strong fiscal Q4 results, with operating profits up 85% to $1bn.

Fast food pizza chain Domino’s [DPZ] was another strong performer in June. The stock saw a 7.6% rise across the month and is rated a ‘hold’ by a consensus of 33 analysts. Its valuation has improved considerably since the company’s earnings miss in April and, though US sales have struggled, its international arm saw 3.6% growth in retail sales in Q1. 

Also seeing June gains was Enphase Energy [ENPH], with Finscreener reporting a 7% jump across the month. The US company develops and makes solar micro-inverters.

Quanta Services [PWR], which offers infrastructure for US power companies, also saw its share price rise by 5.4%.

Is a full-blown recession likely?

Investors remain concerned that the Fed will continue to hike interest rates in July to fend off inflation. This could send the US officially into a recession, with some analysts arguing that it may already be in one. This is the view of ARK Invest’s Cathie Wood, who told CNBC’s Squawk Box on 28 June that she believes the country has already entered a recession as consumer sentiment is at “record low levels”.

The S&P 500’s fall of more than 20% since the start of the year places the stock market into bear territory. Economists at Morgan Stanley last week noted that the odds of a US recession in the next 12 months were at 35%. “At this point, a recession is no longer just a tail risk given the Fed's predicament with inflation,” they said.

However, Erik Nielsen, global chief economist at UniCredit, told CNBC this week that he believes there is a “very high chance the Fed ends up cutting rate[s] towards… the end of next year”. “Can you really hike interest rates into a recession even if inflation is high? That would be unusual,” he said on 28 June.

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