US equities are cheap, Citi says

Don´t count US equities out just yet, strategists at Citi said.

Yes, they had already outperformed "strongly" in this cycle, strategists Robert Buckland, Mert C Genc, Cosimo Recchia, Jonathan Stubbs and Ayush Tambi admitted in a research note published on 4 August.

US stocks had already climbed back to stand 38% above their previous peak, whereas the Nikkei-225 was lower, the Euro Stoxx some 29% under and the MSCI EM index 35% adrift.

As a result, valuations Stateside were left looking lofty, trading on an average price to earnings multiple of 23 times profits, the highest price-to-book value at 2.9 and on the lowest dividend yield of just 2.1%.

A widely followed measure, the so-called cyclically-adjusted price-to-earnings multiple or CAPE for US stocks was as 26 times´ profits, versuas a multiple of 16 against the Rest of the World.

Be that as it may, in terms of their free cash flow yield of 4.1% against 3.5% for RoW, US equities looked "cheap", they pointed out.

"FCF Yield has been the winning valuation metric in this cycle," they said.

Furthermore, the US market was 'de-equitising' in contrast with the opposite trend in RoW.

"Share buybacks, debt-financed M&A, and low equity issuance means that the US equitymarket is shrinking. Consequently, we prefer to pick our fights elsewhere and remain Neutral US equities," they explained.