2 Sectors That Might Move In The Opposite Direction In 2022

2 Sectors That Might Move in Opposite Directions in 2022

The beaten-down travel industry and the hyped-up energy sector might end 2021 differently than the note they started the year on.

Adam Othman

Adam is a value investor who is always on the hunt for fantastic undervalued companies that he can share with Motley Fool readers. He follows Warren Buffett and Charlie Munger's investment advice and has completed the Canadian Securities Course. When he's not investing, Adam can usually be found traveling or skiing.

Published November 11, 2021 10:00 am EST

For the TSX as a whole, 2021 has been a year of recovery. But if you look into different sectors, you might see different trends. For some, it was a year of correction and long-due normalization. For others, it has been a year of powerful growth. And some sectors and industries experienced a decline in 2021.

Many sectors might hold to the current pattern as they enter the next year. But some might see a different pattern emerge.

The energy sector

The energy sector has been on the rise since the beginning of 2021. The S&P/TSX Capped Energy Index grew about 75% since the beginning of this year, and the momentum that’s carrying the sector upwards is not showing any indications of waning. But the demand crunch that’s boosting this growth is unlikely to continue for long.

It might only take a couple of months of OPEC and energy companies surpassing demand projections, and the fear of another glut building could kill the current momentum.

So, the energy sector might move in a different direction than it’s moving in now, and if a correction is due in 2022, it might be a good idea to buy amazing dividend stocks like Pembina Pipeline (TSX: PPL)(NYSE: PBA). The pipeline company is already offering a juicy 6.2% yield, one of the highest among the aristocrats. And if the correction is brutal enough, you might be able to lock in a 7% yield.

Another reason to buy Pembina is its modest growth potential. The company was a slow but consistent grower before the pandemic, and if it can continue the pattern after the correction, you might be able to benefit from a decent amount of capital appreciation as well.

The travel industry

Travel stocks like Chorus Aviation (TSX: CHR) have been in a rut ever since the pandemic. Chorus itself is still 52% down from its pre-pandemic valuation. The regional airline offers a variety of aviation services, including aircraft leasing and maintenance services. Before the pandemic, the company grew up to be the second-largest regional aircraft lessor in the world.

Apart from its business with Air Canada, the company has a fleet of 60 aircraft (which were worth $1.3 billion in 2019), which the company leases out to different airlines around the globe.

But 2022 might bring good tidings for the travel industry as a whole and the company in particular. If travel around the world takes off and the revenue from aircraft leases starts flowing in at (or near) pre-pandemic levels, the stock might reach pre-pandemic heights as well, which could double your capital if you invest now.

Foolish takeaway

Many trends are likely to change in 2022. Successfully predicting which stocks or sectors are heading for a bear market phase and which ones are poised for a bull run can help you identify what to sell and what to buy. If you’ve only bought energy growth stocks for the current bull run, keep an eye on the shifting patterns to identify the right time to sell.