Overview

Citi believes that the recent pullback in the Russell 1000 Growth Index presents a buying opportunity for investors. The index, which has recorded a 25% total return in 2023, reached a peak of 34% on July 19 before retracing more than 6%. However, underlying single-stock dispersion has been significant, with almost two-thirds of the stocks in the index falling 10% or more from their 2023 highs. Citi strategist Scott Chronert suggests that this indicates more pressure on individual stocks than what is reflected in the index price action.

Citi’s Screening Criteria

Citi conducted a screening process to identify growth stocks that could be attractive on a pullback. The selected stocks met the following criteria:

• A buy rating from Citi
• At least 75% of market capitalization assigned to growth-style per Russell
• Down 10% or more from year-to-date highs (after March 31)
• Consensus free cash flow per share estimates above March 31 levels
• FY5 free cash flow per share greater than or equal to market-implied estimates

Highlighted Stocks

Here are some of the stocks that made the list and their respective outlook:

Lockheed Martin

Defense and aerospace company Lockheed Martin is currently down 18% from its 2023 high in April. However, the consensus estimate for its free cash flow per share has increased by nearly $5 since the end of March. The company has faced challenges with its aircraft suppliers and lowered its full-year delivery forecast for F-35 jets. Year-to-date, Lockheed Martin shares have declined by 15%.

Pinterest

Image-sharing company Pinterest has experienced a modest rally following its recent investor day, but shares are still down 14% from their year-to-date highs. However, the company’s management expects revenue expansion of approximately 8% this year after a period of slower growth in 2022 and 2023. The consensus estimate for Pinterest’s full-year free cash flow per share has increased by $2.03 since the end of Q1. Overall, the stock is up 8.8% in 2023.

Nvidia

Chipmaker Nvidia has seen a remarkable year-to-date surge of over 188%, but it is now down 18% from its peak in late August. Despite concerns of overbuying due to the significant rally, the average price target suggests that shares could still rise by an additional 47.7% from the closing price on Friday. Almost 95% of analysts covering Nvidia rate it as a buy.

KLA

Dutch-based chipmaker KLA has declined by 14% from its peak in 2023. However, the stock remains more than 20% higher for the year.

Source: HaberTusba’s Michael Bloom