‘Halftime Report’ traders like financials, see sector doing well even in a recession

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As investors position their portfolios for the year ahead, one sector is a standout pick for the investment panel on CNBC’s “Halftime Report” : financials. Financials are well-positioned to deal with volatility after preparing for a bearish scenario in 2023, according to the investment committee on Wednesday. The panel included Joe Terranova, Karen Firestone, Jenny Harrington and Jim Lebenthal. “In every recession, there’s one sector, whose balance sheet is most negatively affected by the recession. So if you go back to 2000, 2001, it was technology. Well, what happens? That sector cleans up its balance sheet. and the next recession, they’re able to endure through that environment,” said Terranova, senior managing director at Virtus Investment Partners. “In ’08, technology, best sector. So, if you think about ’08, financials’ most negatively impacted, cleaned up the balance sheets, I think they’re gonna be resilient and recessionary environment,” Terranova added. Gilman Hill Asset Management CEO Jenny Harrington named financial stocks as her top 2023 sector pick, saying the sector is undervalued after reviewing its price/earnings to growth ratio, or PEG ratio. Financials had the second-lowest PEG ratio among the S & P sectors, after consumer discretionary stocks. What’s more, banks may have bolstered their reserves for a truly bearish scenario. “If my friend [Jim Lebenthal] is right, and we have no recession or not a terrible recession, banks should end up doing really well next year,” Harrington said. The financials sector in the S & P 500 was down by 12% in 2022, still outperforming the broader market index despite the drop. Similarly, Aureus Asset Management Chairman and CEO Karen Firestone chose financials as her top sector in 2023, though she specified she prefers companies apart from the big banks in the sector. Firestone named S & P Global , Charles Schwab , First Republic Bank and Blackstone as stocks that she owns, all of which are down severely after the past year. Shares of S & P Global lost 29% in 2022, while First Republic Bank plunged nearly 41%. Meanwhile, Blackstone dropped more than 42% last year. Regardless, the investor expects these stocks are more attractive in the coming year, given their higher cash flow and dividend yields. Notably, Firestone called Charles Schwab one of her top 2023 stock picks, saying the business has a lot of momentum for asset growth, and will be supported by higher interest rates. According to Firestone, “It’s an organic growth story, and we think that this multiple can sustain itself.” The other investment panel members approved of the picks. “I don’t think we’re going to have a recession,” Cerity Partners’ Lebenthal said. “The balance sheets are in great shape, which means their lending is going to continue, and if you don’t have a recession, then all that capital expenditure that you’ve heard me talk about for months comes to fruition.” “That needs financing, okay, and that financing is going to come from the banks, whether it’s in loans or underwriting debt. Economic activity benefits the financials,” Lebenthal added. Here is the full 2023 stock picks from the group: Karen Firestone: Charles Schwab, Align Technology, American Tower; Sector Pick: Financials Jenny Harrington: Kohl’s, Uber, B & G Foods; Sector Pick: Financials Jim Lebenthal: Boeing, Cleveland-Cliffs, Paramount Global; Sector Pick: Industrials