SIGN (Sector & Industry Group Navigator) is an exhaustive review of sectors and industry groups by Citi analysts Tobias Levkovich, Lorraine Schmitt and Christina Wood.

The recommendations in the SIGN report for this New Year are summarized below:

Industry Group Attribute Comparison

 

 

 

 

Industry Group Earnings Sentiment Trading Places Valuation Fundamentals / Catalysts
OVERWEIGHT
DiversifiedFinancials

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+

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Real Estate

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Capital Goods

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Semiconductors & Semi Equipment

+

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Software & Services

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+

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Technology Hardware& Equipment

+

+

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+

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Utilities

+

+

+

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MARKET WEIGHT
Food & StaplesRetailing

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Food, Beverage & Tobacco

+

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Household & Personal Products

+

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Energy

+

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Banks

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Insurance

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Commercial Services& Supplies

+

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Transportation

+

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Materials

+

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UNDERWEIGHT
Autos & Components

+

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ConsumerDurables & Apparel

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Consumer Services

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Media

+

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Retailing

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Health CareEquipment & Services

+

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Pharmaceuticals & Biotechnology

+

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Telecom Services

+

=

We take a look at the industry groups that have been rated Overweight by Citi, and the rationale for that rating.

Diversified financials

1-div-financials Citi SIGN

  • According to Citi, historically, the first quarter is the best time to own Diversified Financials stocks, based on seasonal patterns for this industry group.
  • The group has the second highest beta of all industry groups.
  • Fundamentally, the group benefits from a bullish equity environment.

Real estate

2-real-estate SIGN

  • Downtrend in the percentage of Buy ratings since May.
  • The S&P500 Real Estate Sector Index has crossed below the 200-day moving average
  • Rising bond yields are pressuring opportunities.
  • Fundamentally, lower supplies, better occupancy and a pickup in home prices are favorable factors.
  • Credit conditions are favorable too.

Capital goods

3-capital-goods SIGN

  • Seasonal moves suggest that historically the first quarter is a good time to buy these stocks.
  • According to Citi’s 12-month lead indicator for Capital Goods, these stocks should outperform during the first half of the year.
  • There is a lead time of about three months before capital goods stocks rise in response to a bounce in the ISM. The recent strength in the ISM numbers points to good times ahead for these stocks.

Semis & semi equipment

4-semis SIGN

6-semis SIGN

  • Earnings revisions are showing an upward trend.
  • Buy ratings from the sell-side are running below the Semi index.
  • According to Citi, this group “typically records its best gains from January through May.”
  • Valuations of semiconductors are attractive, while semi-equipments look rich.

Software & services

8-tech-hw SIGN

  • Higher short interest, buy ratings running below the benchmark
  • To benefit from higher corporate capex in view of easy credit conditions prevailing since late 2011.
  • Citi’s proprietary lead indicator is pointing to relative outperformance.

Tech hardware & equipment

8-tech-hw SIGN

9-tech-hw

  • Upward earnings revisions are showing a rising trend.
  • Short interest is creeping higher.
  • Buy ratings are running below the index.
  • IT capex scenario will be better in 2014.
  • Citi’s lead indicator is also bullish.

Utilities

11-utiltieis

10-utilities

  • Short interest pointing to a likely outperformance.
  • The sector is highly disfavoured, as per Citi’s client surveys.
  • Valuations are ‘deeply attractive’ as per Citi.