Citigroup's Top 7 Value Trades

Monday, 16 Dec 2013 07:43 AM

By Dan Weil

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While stocks have risen virtually across the globe this year, some value opportunities still remain, according to Citigroup strategists.

They put together a list, obtained by CNBC, of their top seven region and sector value plays, ranking them according to their trailing price-earnings ratios (P/E) compared to the MSCI ACWI (All Country World Index).

The seven trades include:

Editor’s Note:
5 Reasons Stocks Will Collapse . . .
  • Emerging Asia
  • Central and Eastern Europe, the Middle East and Africa (CEEMA)
  • Latin America
  • U.K. stocks
  • The global financial sector
  • The global energy sector
  • The world's 50 biggest companies by market capitalization

"Our seven global value ideas all trade at a simple P/E discount to the global benchmark," Citi strategists said, according to CNBC.

In addition to P/E ratios, Citi looked at other valuation measures and fundamentals, such as earnings momentum, dividend-per-share (DPS) growth and balance sheet strength.

The three trades that tested strongest were the financial sector, emerging Asia and CEEMA.

"The financials sector passes all the valuation tests and offers decent fundamentals with strong earnings momentum and DPS growth. Within financials, EM [Emerging Markets] Asia and Continental Europe look strongest against our stress test," the strategists said.

CEEMEA "ticks all the boxes on valuation but poor earnings momentum and free cash flow (FCF) margin might make it less attractive," Citi noted.

Meanwhile, Morningstar investment strategist Andy Brunner has an optimistic view for global stock markets for next year.

"While it may be difficult to repeat the excellent returns recorded so far this year, equity markets are predicted to deliver at least double-digit returns in 2014," he writes on Morningstar.com. This view is predicated on strong U.S.-led global growth . . . [and] still highly accommodative global monetary policy."

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

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