On Thursday, the bank’s analysts released a list of 60 stocks to watch—30 that could pop and 30 that could slide, evenly divided between large-caps and small-caps. They looked at stocks held in significant amounts by a high percentage of mutual and hedge funds. Then the analysts observed if funds have crowded more or less into those stocks in the past month.
The thesis: Stocks that are less held by these funds but have seen an uptick in crowding are likely positioned for a near-term pop. Stocks that are more held by these funds but have seen a downtick in crowding are positioned for downside in the near term.
“We focus on Citi-covered stocks with notable changes in quant crowding,” wrote Scott Chronert, global head of ETF research at Citi. “When viewed relative to an individual stock’s fund ownership profile, shorter-term changes in quant crowding become a valuable tool for assessing short-term price direction.”
Here are five large-cap stocks that are less held and have experienced some crowding in the past month—that is, ones poised to pop—and their share price movements over that period. These stocks are mostly economically sensitive. Citigroup points out—as do many on Wall Street—that the past few months have seen investors pivot into cyclical stocks over defensive and growth stocks, both of which are less correlated to changes in the economy.
has risen just 2.3% in the past month.
Conversely, here are five large-cap stocks that funds hold much more of and have been crowding into less—that is, those poised to drop—in the past month. These stocks are mostly defensive.
As it happens, Starbucks shot up 5% Thursday after management increased its long-term revenue and earnings outlook. JPMorgan, like other bank stocks, has benefited from an expanding yield curve, which boosts bank profitability and comes as investors grow optimistic on the economic outlook. Yet its performance over the past month has been weak compared with the more-favored stocks on Citi’s list.
Within small-caps, nine out of the 15 well-positioned stocks were in the economically sensitive sectors of energy, financials, and manufacturing.
Liberty Oilfield Services
(LBRT), for example, with a market cap of $1 billion, is up 36% in the past month.
For small-caps that are positioned poorly for the short term, seven out of the 15 stocks were in the defensive sectors of utilities, consumer staples, health care, and real estate.
(PNM), a $3.9 billion utility, is flat in the past month. The
Russell 2000 index
of small-cap stocks is up 10% in the past month.
Small-caps are often more volatile than large-caps and outperform large-caps when the economy is coming out of recession.
Citi noted that investors are showing an overall “value bias” over growth in both large-caps and small-caps. Investors tend to favor value stocks, which are more correlated to changes in the economy, when the economic outlook brightens, as it has of late. Since late September, a heavy rotation into value from growth has taken hold. Value stocks include many cyclical names, and the recent move into value has been consistent with the recent move into cyclicals.
Write to Jacob Sonenshine at firstname.lastname@example.org