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Wall Street Stories of 1H to Continue in 2H: 5 Picks

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U.S. stocks are on track for the worst first half in more than 50 years. Persistently high inflation, a hawkish Fed, and Russia's invasion of Ukraine are weighing heavily on investor sentiment. The combination has sparked fears of a recession anytime soon and is expected to influence the stock market in a big way in the second half as well.

As such, investors should consider stocks such as CF Industries (CF - Free Report) , Unum Group (UNM - Free Report) , Archer Daniels Midland Company (ADM - Free Report) , The Chef's Warehouse (CHEF - Free Report) and PBF Energy (PBF - Free Report) that could be compelling picks to tap the trend.

With just a day left to end the first half of 2022, the S&P 500 is in bear territory, falling nearly 20%. The Dow Jones and the Nasdaq have plunged 14.6% and 28.5%, respectively.

Let’s discuss these events in detail below with the stocks:

Skyrocketing Inflation

Prices of almost everything, from raw materials to food prices to shipping costs, have surged at the fastest pace in nearly four decades. The consumer price index jumped 8.6% year over year to a fresh 40-year high in May, from an 8.3% annual increase recorded in April. The pandemic-related supply shortages and continued strength in consumer demand continued to push prices higher.

Investors could make some profits by investing in stocks benefiting from rising inflation. While there are many options, CF Industries could be an exciting bet. With a market cap of $18.3 billion, CF Industries is one of the largest manufacturers and distributors of nitrogenous fertilizer and other nitrogen products globally.

The stock has soared 24% this year. CF Industries has an estimated earnings growth rate of 346.9% for this year. It carries a Zacks Rank #2 (Buy) and has a VGM Score of A.

Hawkish Fed

In the latest FOMC meeting, the Federal Reserve announced the biggest interest-rate increase since 1994 to quell the four-decade high inflation. Fed Chair Jerome Powell raised interest rates by 75 bps, pushing the federal funds rate between 1.5% and 1.75%. This was followed by a 50 bps hike enacted in May. The central bank is on pace to hike rates again in July by another 75 basis points, as tracked by the CME's Fed Watch Tool.

The financial sector seems to be the biggest beneficiary of the Fed’s move. This is because the steepening yield curve would bolster profits for banks, insurance companies and discount brokerage firms. Unum Group provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. The stock has surged about 40% this year and is expected to maintain its bullish trend heading into 2022.

Unum Group has an impressive estimated earnings growth of 17% for this year. UNM has a Zacks Rank #2 (Buy) and VGM Score of A.

Russia-Ukraine Crisis

The ongoing tensions between Moscow and Western countries over Ukraine have sparked a rally in a broad range of commodities. This is especially true as the tensions have led to supply disruption fears in an already-tight commodity market. Russia is a commodities powerhouse and a key supplier of energy, metals and agri, while Ukraine is a major exporter of corn and wheat. Together, Russia and Ukraine account for roughly 29% of the global wheat export market

Although most companies are benefiting from this trend, Archer Daniels is one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products. The stock has an estimated growth rate of 22% for this year and has a market cap of $42.8 billion.

ADM has a Zacks ETF Rank #1 (Strong Buy) and VGM Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Recession Fears

As the global economy is struggling with skyrocketing inflation and low growth, the World Bank has warned of a recession. The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are all hurting growth. Additionally, energy and food bills have been rising around the world. The World Bank now expects the global economy to expand 2.9% for this year, down from 5.7% growth in 2021 and lower than the 4.1% expectation projected in January.

The consumer staples sector is viewed as defensive as it includes a variety of items like food & beverages, non-durable household goods, hypermarkets and consumer supercenters that are essential for daily needs. These products see steady demand even during an economic downturn due to their low levels of correlation with economic cycles. Chefs' Warehouse is a distributor of specialty food products in the United States. The company is focused on serving the specific needs of chefs who own and operate restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools and specialty food stores.

Chefs' Warehouse earnings are expected to grow to $1.22 per share this year from a loss of 5 cents. CHEF is up 20% this year and has a Zacks ETF Rank #1. Chefs' Warehouse has a VGM Score of B.

Energy Sector: A Winner

The energy sector has been the outperformer this year on surging oil prices. Tightening supply and improving demand fundamentals have been driving prices higher. Overall demand for fuel has rebounded to the pre-pandemic levels. PBF Energy has more than doubled this year, with a potential to move higher further in 2022. It is a leading refiner of crude and provides end products that comprise heating oil, transportation fuels, lubricants and many related products

PBF Energy has an estimated earnings growth rate of 393.6% for this year and sports a top Zacks Rank #1. PBF has a VGM Score of A.