Microsoft makes Citigroup’s list of top 20 large-cap stocks

The stock market soared last year, with the S&P 500 jumping 24%.

The market has moved little so far this year, leaving the S&P 500 forward price-earnings ratio at 19.5, as of last Friday, according to FactSet. That puts the ratio above its five-year average of 18.9 and its 10-year average of 17.6.

Those numbers offer a solid argument for stocks being overvalued. But some say that adjusted for the current high interest rates, stocks aren’t overvalued at all. So what’s an equity investor to do?

Stocks surged over the past year, but there are still bargains out there.

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Valuations for the young and the old

If you’re young, it doesn’t really matter when you invest in stocks, as long as you do invest. If you invested in the S&P 500 on Oct. 16 just before the market crashed 20% in day, that investment has since skyrocketed by almost 17 times before dividends.

Related: Goldman Sachs heavyweights forecast what’s next for the stock market, economy

To be sure, if you’re older, valuation matters more. That’s because you won’t have as much time for the market to rebound from declines before you need to take money out of your portfolio.

And while bear markets rarely last more than two years, there have been exceptions – such as 1929 to 1954 and 1966 to 1982.

In any case, there are almost always individual stocks that are on sale, trading below analysts’ valuation estimates.

Using valuations as one of its factors, Citigroup has formulated a list of its top 20 large-cap stocks for 2024. Citi used bottom-up, fundamental analysis in choosing the winners.

“We consider growth prospects relative to the valuation set up, health of the balance sheet,” the bank said in a report, according to Seeking Alpha. “We look for operating leverage with a resultant impact on profitability.”

Terrific 20-pack of stocks

Here are the Citi top 20, in alphabetical order, with comments from Morningstar analysts about four of your favorites.

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1. Amazon  (AMZN) – Get Free Report, the technology/retail titan. “Amazon dominates its served markets, notably e-commerce and cloud services,” said Morningstar analyst Dan Romanoff. “It benefits from numerous competitive advantages and has emerged as the clear e-commerce leader.”

2. Applied Materials  (AMAT) – Get Free Report, the largest maker of semiconductor wafer fabrication equipment in the world.

3. Bank of New York Mellon  (BK) – Get Free Report, the trust bank.

4. Constellation Brands  (STZ) – Get Free Report, the beer company, including Corona and Modelo in the U.S.

5. CRH  (CRH) – Get Free Report, a British maker of building products.

6. Deere  (DE) – Get Free Report, the world’s leading agricultural equipment maker.

7. Edison International  (EIX) – Get Free Report, a utility.

8. HCA Healthcare  (HCA) – Get Free Report, a hospital owner.

9. Intuitive Surgical  (ISRG) – Get Free Report, a maker of robotic surgery equipment.

10. Lockheed Martin Corp.  (LMT) – Get Free Report, the airplane maker, which is the largest defense contractor.

11. LPL Financial Holdings  (LPLA) – Get Free Report, a securities brokerage.

12. Merck  (MRK) – Get Free Report, the giant drug company.

13. Microsoft (MSFT) – Get Free Report, the software colossus. “Microsoft is one of two public cloud providers [along with Amazon] that can deliver a wide variety of software solutions at scale,” Romanoff said. “Based on its investment in OpenAI, the company has also emerged as a leader in artificial intelligence.”

14. Prologis Inc.  (PLD) – Get Free Report, the biggest owner of U.S. industrial property.

15. Quanta Services  (PWR) – Get Free Report, a provider of specialty contracting services.

16. Rockwell Automation  (ROK) – Get Free Report, an automation company.

17. Schlumberger  (SLB) – Get Free Report, the world’s largest oilfield service company.

18. T-Mobile  (TMUS) – Get Free Report, the cellphone carrier. “T-Mobile’s strong brand and reputation, coupled with its strong spectrum position, should drive strong revenue and profit growth over the next couple of years,” wrote Morningstar analyst Michael Hodel. “Longer term, a rational competitive landscape will allow the firm and its rivals to deliver stable cash flow.”

19. Union Pacific  (UNP) – Get Free Report, the railroad.

20. Walmart  (WMT) – Get Free Report, the gargantuan retailer. “Walmart’s unrivaled scale relative to its brick-and-mortar retail peers provides the firm with the rare ability to adapt to a dynamic retail landscape,” said Morningstar analyst Noah Rohr. “Walmart’s unique promise of a wide assortment of goods at low prices has allowed it to [be] the nation’s preeminent retailer for over 30 years.”

The author owns shares of Amazon, Bank of New York Mellon, Lockheed Martin, Microsoft, Prologis and Walmart.

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