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ESG investing underperformed the broader market in 2022, but strategists at Citi think the segment could be about to rebound. Last year, the MSCI Europe Socially Responsible Investing index declined by 13.4% compared to the 8.9% fall in the broader MSCI Europe index. But Citi said ESG stocks — or those which take environmental, social, and governance factors into account — have historically shown resilience, with profit growth outpacing the broader market during earnings slowdowns. Citi strategists also pointed toward long-term growth factors expected to continue thanks to the Biden administration’s Inflation Reduction Act . “Following a year when ESG was heavily stress tested we believe that ESG strategies could be ‘back in Vogue,’ especially as investors re-focus on structural drivers,” wrote Citi’s equity strategists led by Beata Manthey in a note to clients on Apr. 13. In line with this renewed focus, Citi has identified a number of stocks that it expects to rebound this year. The table below shows 10 stocks with the biggest potential upside. To identify ESG stocks with “resilient” earnings per share, Citi screened the Stoxx Europe 600 index for large-cap stocks meeting several proprietary criteria, including ranking in the top 50 percentile of Truvalue Labs ESG index. On average, the stocks have outperformed the market year-to-date, a trend Citi believes will continue. Among the bank’s picks, France’s outsourcing firm Teleperformance and payment services provider Worldline had the biggest upside potential at 60% and 42%, respectively. Stifel equity analysts, who have a 58% upside price target on Teleperformance, told clients that the long-term growth prospects remained intact despite disappointing last quarter results. “We expect its M & A and diversification strategy into a broader BPO services portfolio will not only accelerate growth and margin expansion, but improve the resilience and quality of earnings,” Stifel analysts wrote in a note to clients earlier this year. Similarly, with an above-consensus price target of 46% for Worldline, Bank of America analysts said the company’s fourth-quarter earnings were “encouraging” and “solid” despite a weaker outlook from competitors Adyen and Fidelity National Information Services . “We believe WLN continues to benefit from a combination of market share gains, new merchant wins and the secular shift to digital payments in Europe, underpinned by strong execution,” wrote BofA analysts led by Frederic Boulan in their latest note to clients in mid-February. Other stocks with the highest upside among Citi’s favorite ESG picks include London-listed insurer Prudential , advertising major WPP , and packaging giant DS Smith .
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