Pettit: We like Meta, Amazon, Google

Key Concepts

• Sentiment Reset: Shift from high positive sentiment to neutral territory.
• Lefkovitch Index: Citi Research's sentiment gauge.
• Tradable Bottom: A price level where buying opportunities emerge.
• Pension Fund Rebalancing: Adjustment of asset allocation by pension funds.
• GARP (Growth at a Reasonable Price): Investment strategy focusing on companies with sustainable growth at a fair valuation.
• Thematic 30: Citi Research's list of 30 recommended stocks based on specific themes.
• Mag Seven: The group of seven mega-cap technology stocks (Meta, Apple, Amazon, Google, Microsoft, Tesla, Nvidia).
• Free Cash Flow: Cash flow available to a company after all operating expenses and capital expenditures are paid.

Market Sentiment and Potential "Tradable Bottom"

• Sentiment Reset: The market sentiment, which was previously very high at the beginning of the year, has come down to neutral territory. The Lefkovitch Index, Citi's sentiment gauge, is now in neutral territory for the first time since October.
• Multiple Valuation: Trailing multiples for the S&P 500 are now within Citi's fair value band.
• Tradable Bottom Discussion: There's a debate about whether the market is at a tradable bottom, with some anticipating near-term upside.
• Pension Fund Rebalancing: Dan Niles suggests that pension fund rebalancing could lead to a positive week for the S&P 500.
• Earnings Season: Q1 earnings season is approaching, and expectations are that estimates will be lowered.
• Citi's Perspective: Citi believes that 5500 on the S&P 500 is a level where risk-reward becomes balanced.
• Remaining Uncertainties: Uncertainties remain regarding tariffs and consumer numbers. Revisions might need to come down slightly.
• Cautious Approach: Citi is not aggressively chasing the bottom but acknowledges that the current market position is healthier than higher levels like 6100-6200 on the S&P 500.

GoDaddy: A Stock Pick

• Thematic 30 Inclusion: GoDaddy is part of Citi's Thematic 30 recommended list.
• Business Focus: While known for web hosting, GoDaddy is developing AI-enabled tools for small and medium-sized businesses.
• Strong Fundamentals: After Q4 earnings, analysts noted strong performance and good projected growth for 2025.
• Pullback Opportunity: The stock has pulled back, creating an opportunity.
• Free Cash Flow Potential: The market is pricing in $12 in free cash flow in three years, but Citi believes it could be closer to $14.
• GARP Story: GoDaddy fits the GARP (Growth at a Reasonable Price) investment strategy.
• Recommendation: Citi recommends adding GoDaddy on a pullback.

Mag Seven Analysis

• Mag Seven Pullback: The Mag Seven ETF is down double digits year-to-date.
• Buyable Dip Question: The question is whether this pullback represents a good entry point or if more trouble lies ahead.
• Individual Stock Preferences: Citi favors Meta, Amazon, and Google, believing their earnings expectations are achievable.
• Neutral Stance: Citi is more neutral on Apple, Tesla, Nvidia, and Microsoft.
• Divergent Performance: The Mag Seven stocks are not expected to trade as cohesively as they have in the past.

Synthesis/Conclusion

Citi's equity strategist suggests a "reset" in market sentiment, moving from high optimism to a more neutral stance. While acknowledging potential near-term upside and a possible "tradable bottom," they advise caution due to lingering uncertainties. GoDaddy is highlighted as a promising stock pick based on its growth potential and AI initiatives. Regarding the Mag Seven, Citi expresses selective preference, favoring Meta, Amazon, and Google over others, indicating a shift away from the uniform performance seen in previous years.