Citi's "Buy Growth on a Pullback" Opportunity: Top Stocks to Consider
The Russell 1000 Growth Index has experienced a decline from its year-to-date highs, presenting what Citi believes to be a favorable opportunity for investors to "buy growth on a pullback." The broader growth leadership index has achieved a 25% total return basis in 2023, reaching its peak of 34% on July 19. However, since then, the index has pulled back by over 6%, with significant dispersion among individual stocks, as noted by strategist Scott Chronert. Approximately two-thirds of the stocks in the index have fallen by 10% or more from their 2023 highs, with a third of them plummeting over 20% below their year-to-date peaks.
Implications of Single-Stock Pressure
Scott Chronert's analysis suggests that there has been more single-stock pressure beneath the surface than what the index price action would imply. This observation indicates potential opportunities for investors, as Citi believes there is an attractive medium-term setup for growth stocks, offering a decent margin of safety for fundamentals. In line with this, Citi screened for growth names that meet specific criteria to consider during this pullback.
Highlighted Stocks and Analysts' Perspectives
Among the stocks identified by Citi, defense and aerospace company Lockheed Martin stands out. Despite being down 18% from its 2023 high in April, the company's consensus estimate for free cash flow per share has increased by nearly $5 since the end of March. On the other hand, image sharing company Pinterest has seen a modest rally following its recent investor day, but shares remain down 14% from their year-to-date highs. However, the stock has still gained 8.8% in 2023, with management forecasting revenue expansion of approximately 8% this year.
Chipmakers Nvidia and KLA have also made the list. Nvidia, which has surged over 188% year to date, is currently down 18% from its late August peak. Despite concerns about the stock being overbought due to its significant rally, the average price target suggests potential for an additional 47.7% rally from Friday's close. Nearly 95% of analysts covering Nvidia rate it as a buy. Dutch-based KLA, on the other hand, has declined 14% from its 2023 peak but remains over 20% higher for the year.
In conclusion, Citi's recommendation to "buy growth on a pullback" presents an opportunity for investors to consider specific stocks that meet the firm's criteria. The analysis highlights the potential for medium-term growth and a margin of safety for fundamental factors. Stocks such as Lockheed Martin, Pinterest, Nvidia, and KLA are among those identified as potential options. It is important to consider analysts' perspectives and the performance of these stocks in the context of the broader market.
Implications of Citi's "Buy Growth on a Pullback" Strategy for New Businesses
The recent decline in the Russell 1000 Growth Index has created what Citi perceives as a prime opportunity for investors to "buy growth on a pullback." This situation offers a unique perspective for new businesses seeking investment opportunities. The index's pullback of over 6% since its peak in July, coupled with significant dispersion among individual stocks, signals potential opportunities for growth.
The Underlying Single-Stock Pressure
According to Scott Chronert's analysis, the market has experienced more single-stock pressure than what the index price action reveals. This suggests that beneath the surface, there are stocks with significant growth potential. New businesses can leverage this insight to identify investment opportunities that offer a decent margin of safety for fundamentals.
Stock Opportunities and Analysts' Insights
Among the stocks highlighted by Citi, Lockheed Martin and Pinterest are of particular interest. Despite Lockheed Martin's 18% drop from its 2023 high, the company's consensus estimate for free cash flow per share has seen a significant increase. Pinterest, on the other hand, has experienced a modest rally but remains 14% down from its year-to-date highs. Despite this, the company is still showing positive growth with an 8.8% increase in 2023.
Chipmakers Nvidia and KLA also offer potential opportunities. Despite Nvidia's 18% drop from its late August peak, the average price target suggests a potential rally of an additional 47.7%. KLA, despite a 14% decline from its 2023 peak, remains over 20% higher for the year.
In essence, Citi's "buy growth on a pullback" strategy presents a valuable perspective for new businesses. By considering the potential for medium-term growth and a margin of safety for fundamental factors, new businesses can identify promising investment opportunities. The performance of stocks like Lockheed Martin, Pinterest, Nvidia, and KLA in the broader market context offers valuable insights for strategic decision-making.