The consensus has earnings per share (EPS) growing by 11 percent for 2013, but according to a Citi equity strategy report, that number is far too high, just like it was this time last year and this time in 2011. There’s a strong seasonality to EPS projections, and analysts almost always end up downgrading companies during the second half. The trick is to figure out which stocks already have the looming downgrade priced in, and according to Citigroup Inc. (NYSE:C)’s report the best way to do that is by picking countries instead of specific sectors.

Citigroup’s EPS forecast

For whatever reason, analysts have developed a habit of raising their EPS targets during the first half of the year and then making downgrades during the second half, at least they have for 17 of the last 25 years including 2011 and 2012. With Citigroup Inc. (NYSE:C)’s top-down forecast for EPS growth at 7 percent and the global consensus at 11 percent, it looks like history is set to repeat itself.

Citigroup EPS downgrades seasonality

Valuation by sector

The spread in valuation by sector is too low to find stocks that are cheap even with a spate of downgrades around the corner, and a momentum strategy may be the best way to preserve beta. But the spread in valuation by country has been growing for the last year, and Citigroup Inc. (NYSE:C) recommends that value investors pick countries to find good deals.

“The PE spread is now towards the top of the range (ex the financial crisis) and perhaps implies that, unlike sector pickers, country pickers should now be using more value-oriented strategies,” the report explains. “Wider dispersion would suggest that country-pickers may already be pricing in future downgrades and should help reduce the price impact of those downgrades when they eventually come.”

The report specifically recommends investing in the U.K., Germany, Korea, and China over Mexico, the U.S., Switzerland, and Australia. Their analysis leaves out the two extremes, Russia and Japan.

EPS dispersion by country

Citigroup Inc. (NYSE:C) has been more bearish on EPS than many of its competitors, recently dropping its target for the S&P 500 (INDEXSP:.INX), but with such a strong seasonal correlation people should prepare their portfolio for the coming downward revisions.