As the market grapples with rising uncertainty and volatility, now is the time to turn to cheap stocks with strong growth potential, according to Citi Research. After a volatile trading month plagued by softening economic data and President Donald Trump ‘s tariff promises, the major indexes ended February lower than where they started. Stocks fell further on Monday and Tuesday, compounding their losses from last month. Going forward, Citigroup equity strategist Drew Pettit thinks that the macroeconomic backdrop will still be a challenge, citing higher implied volatility on the Nasdaq-100 index and lower earnings expectations. “All else equal, lower prices and higher base earnings should lower market-implied growth expectations,” he wrote. “However, there has been an important change to the narrative. And that has been the perception of the resilience and enduring nature of secular growth trends given greater technology disruption even in the early innings of generative AI.” Follow GARP Pettit recommended investors look toward stocks that follow the “growth-at-a-reasonable-price” strategy, or GARP, which combines aspects of both value and growth investing. “In aggregate, there are still more stocks now than earlier this year on the Growth side of the ledger that have more attainable implied earnings or free cash flow growth expectations baked into prices,” he wrote. “We continue to advocate Growth investors focus on GARP to either help mitigate out-year estimate softness or get great leverage from upward revisions.” In the note, Pettit compiled a list of stocks that were new additions to Citi’s GARP basket. Ten of the companies that made the list are highlighted below: AppLovin turned up on the screen. Shares plummeted 12% in February, shedding 12% in a single day after short sellers Culper and Fuzzy Panda both released critical reports. In its study, Fuzzy Panda alleged that AppLovin had stolen data from Meta Platforms and used tactics such as “Ad Fraud.” AppLovin’s CEO in a letter to shareholders said the reports made “false and misleading claims” that were “littered with inaccuracies and false assertions.” Sell-side defense Bank of America defended AppLovin as one of its top picks, saying the price decline offered an attractive entry point at a discount valuation. “APP remains our top pick under coverage, with multiple catalysts through 1H25 to sustain the rally,” wrote analyst Omar Dessouky. “Both profit margins and our LT growth forecast handily exceed almost any of its comparables, and it stands on the precipice of transforming the mobile game industry into a new e-commerce advertising medium.” “Separately, we believe AppLovin will remain the performance leader for mobile game advertisers because it maintains a scale of transactional data twice that of its closest competitor; its greater scale drives a feedback loop of improving performance, an increasing share of ad spend, and a higher share of transactional data,” BofA wrote. AppLovin outperformed the market Monday, gaining 3.6% higher after disclosing in a regulatory filing that the board modified the terms of a prior buyback authorization to allow $500 million to be immediately available for repurchase. The stock has soared 442% in the past 12 months. Data center company Arista Networks , up 20% in the past 12 months through Monday, was another name Citi highlighted. Last month, Arista posted fourth-quarter earnings and revenue that topped Wall Street estimates, and issued forward financial guidance also above what analysts were expecting. Following its quarterly results, numerous Wall Street analysts repeated their bullish opinions. Bank of America’s Tal Liani was one, calling the stock a “strong AI beneficiary.” “We have a Buy rating on ANET given continued momentum in 2024 with Cloud and AI Titan commentary pointing to continued infrastructure spending, accelerating growth in enterprise, financials, tier-2 cloud providers, and other key verticals,” he wrote. “We remain positive on management’s ability to execute, the company’s technological differentiation, product positioning and its [total addressable market] growing to $60bn by 2027.” Shares of short-term vacation rental company Airbnb are down 12% in the past 12 months through Monday. However, the stock added almost 15% on Valentine’s Day after posting saying fourth-quarter earnings and revenue beat Street forecasts. Following the strong results, Baird upgraded Airbnb to an outperform from neutral. Analyst Colin Sebastian’s lifted his 12-month price target to $175 from $140, implying potential upside of 24% from current levels. The stock “meaningfully underperformed” over the past year, “and sentiment is mixed, however, with a fortified core business, Airbnb is now positioned for broader marketplace monetization, and accelerating growth in 2H25 and 2026,” Sebastian wrote. “Within our SPEED investment framework, Airbnb ranks well with scale, product and engineering, and we expect rapid improvement in efficiency and data/AI with new platform extensions.”
