These 20 growth stocks are worth considering on a pullback, says Citi

By James Rogers

'Our call since early summer has been to hold Growth and look to buy on pullbacks,' Citi analyst Scott Chronert says

Citi has released a list of 20 large-cap growth stocks that it says present opportunities in the event of a pullback.

"Our call since early summer has been to hold Growth and look to buy on pullbacks," Citi analyst Scott Chronert said in a note released Monday, adding that Citi has had a tactical preference for cyclicals. "However, on the heels of the strong Cyclicals surge during June and July, and our upwardly revised S&P 500 target of 4600, the messaging has been to buy on pullbacks more broadly," he wrote.

Citi also notes that the Russell 1000 Growth Index RLG has sold off more than 6% from its mid-July high, although two-thirds of the stocks in the index are down 10% or more, with one-third down more than 20%. "This sets up for interesting intermediate to long-term stock selection opportunities," Chronert said.

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The analyst acknowledged that there is still a risk of economic softening ahead, if not a recession. "Yet, the argument that Growth stocks can show fundamental resilience during periods of broader economic weakening is a theme that we have considered for several years now," he said.

Set against this backdrop, the analyst firm has compiled a tech-heavy list of 20 stocks that have a buy rating from Citi, have at least 75% of market cap assigned to growth, according to Russell, and have experienced a decline of 10% or more from year-to-date highs since March 31. Other common characteristics of the stocks include consensus estimates of free cash flow per share above March 31 levels and free cash flow per share within or above market-implied five-year-forward estimates.

Tech heavyweights Apple Inc. (AAPL) and NVIDIA Corp. (NVDA) are on the list, along with Pinterest Inc. (PINS), Lam Research Corp. (LRCX), Teradata Corp. (TDC), Datadog Inc. (DDOG), MongoDB Inc. (MDB), HubSpot Inc. (HUBS) and KLA Corp. (KLAC). The other stocks cited by Citi are Lockheed Martin Corp. (LMT), DraftKings Inc. (DKNG), Las Vegas Sands Corp. (LVS), Chipotle Mexican Grill Inc. (CMG), Netflix Inc. (NFLX), TKO Group Holdings Inc. (TKO), Rockwell Automation Inc. (ROK) and Paycom Software Inc. (PAYC), and healthcare stocks Bruker Corp. (BRKR), Insulet Corp. (PODD) and Intuitive Surgical Inc. (ISRG).

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Shares of Apple, which recently launched its iPhone 15, are down 5.5% in the last three months. Shares of chip maker NVIDIA are up 2.8% over the same period, while Lockheed Martin is down 8.9% and DraftKings is up 8.6%. Las Vegas Sands is down 21.8% and Chipotle is down 8.8%, while Netflix is down 7.8%.

-James Rogers

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09-25-23 1517ET

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