BlackRock: 4 ‘Outside-the-Box’ Opportunities for 2022

But things look different in 2022. The S&P 500, Dow and Nasdaq are all in the red year to date.

While sentiment has tilted bearish for the time being, pockets of opportunity remain for investors willing to dig a little. And Tony DeSpirito, BlackRock’s U.S. investment chief, is helping investors do just that.

“Without a rising tide to lift all boats, we see 2022 as a year for deep thinking and active selection,” he wrote in a note to clients last week. “Separating potential winners and losers may entail questioning some common instincts and looking in less obvious places for opportunities.”

DeSpirito highlighted four sectors that he called “outside-the-box” opportunities. Here’s a look at each one of them.

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Technology

Technology stocks are having a particularly rough start in 2022. The tech-centric Nasdaq is down 9.1% year to date while the Dow is down a more modest 2.3%.

High-growth tech stocks typically have lofty earnings expectations built into them. So when investors expect rates to rise and demand to slow, these stocks get hit the hardest.

Investors are also concerned about whether businesses will start to curtail their technological investments after spending big money on upgrades during the pandemic.

On that front, DeSpirito believes the fear is overblown.

“We believe spending will continue as companies need to keep both home and office systems running in the new hybrid work environment.”

DeSpirito says companies will be prompted to spend on efficiency-enhancing technology due to rising labor costs.

Investors should also pay attention to the 5G rollout, as telecom giants continue to invest heavily in cellular network upgrades.

If you don’t want to pick individual winners and losers, an ETF like the Defiance Next Gen Connectivity ETF (FIVG) provides easy access to a diversified portfolio of 5G stocks.

Energy

Energy investors had a big year in 2021, with the Energy Select Sector SPDR ETF (XLE) having returned a whopping 53%.

While past performance is no guarantee of future results, the momentum in energy stocks has continued in 2022. XLE is already up another 20.5% year to date.

DeSpirito remains bullish on energy stocks.

“There is still a significant need for traditional energy as the world transitions to cleaner solutions, and those needs were magnified as the world reopened in the past year,” he wrote. “In this interim period ― amid robust demand, hesitancy to increase supply, and renewables still far from filling the gap ― we can expect higher prices to linger.”

Oil prices remain strong. WTI crude has risen 19% in 2022. And DeSpirito expects exploration and production companies to capitalize.

The big producers are already market darlings. ExxonMobil is up roughly 25% year to date while ConocoPhillips shares have surged nearly 30%.

Financials

DeSpirito likes financials because the sector offers growth at a reasonable price right now.

“The need for excess return in a lower-return world sets the stage for growth in alternative asset managers,” he wrote. “Yet current pricing suggests markets are skeptical, with some of these high-growth-potential alternative managers priced like value stocks.”

Among companies in the financial sector, DeSpirito likes banks the most because of how well they are positioned for the rising interest rate environment.

As interest rates go up, banks’ net interest spread — the difference between the interest they pay to depositors and the interest they earn from loans — typically widens.

If the Fed does indeed tighten up its monetary policy, banks can look forward to improving profitability.