I was on MoneyLife with Chuck Jaffe earlier this week and he asked me about some stock picks his listeners were curious about. One such stock was Citigroup (C). And when it comes to whether you should buy or sell it, I didn’t hesitate.
Citigroup stock is undoubtedly a buy.
Before that specific question, I was telling Chuck and his listeners something it took me some time to learn: Just because a stock is been beaten down doesn’t mean it’s a bargain
and just because it’s up 200% doesn’t mean it won’t keep going.
Neither scenario necessarily applies for Citigroup, though. The stock has moved sideways over the past year. Still, I’m extremely bullish on the bank.
Broadly speaking, the financial sector has been gaining strength since the recession. This was evident in Citigroup’s strong earnings earlier this month, for starters. The company has strong management, solid credit quality and a nice across-the-board business mix. All those factors helped the company post an earnings beat mid-month.
More specifically, net income for the third quarter tallied $4.3 billion, or $1.35 per diluted share — seven pennies better than the analyst consensus and a strong improvement over the 88 cents per diluted share posted a year prior despite a slight decline in sales.
Citigroup’s strength is likely to take center stage as the year comes to a close, too, as a rate hike may finally be in the cards. In fact, Bank of America (BAC), Wells Fargo (WFC), JPMorgan (JPM) and Citigroup all jumped after this week’s FOMC meeting thanks to an unexpected but quite explicit mention of the December meeting and a possible rate hike.
Citigroup broke above its 200-day moving average after the meeting and held that level even after the following day’s cool-off, which is an even more bullish sign. In fact, Citigroup stock has gained almost 10% over the last month and displaying relative strength vs. the broader market.
As I already mentioned, though, those gains still leave the stock flat over the last 12 months. But that too is good news, as it leaves Citigroup more than well-priced. At less than $54, shares are trading for just 9 times forward earnings despite the long-term annual earnings growth of 30% on tap. In fact, Citigroup has net book value of about $61 a share.
Analysts agree that the value of Citigroup stock should soon catch up. The consensus price target leaves room for 18% upside from current levels, while Oppenheimer specifically just raised its price target on Citigroup to $74, which would represent nearly 40% upside.
Jeffries and Credit Suisse recently upgraded Citigroup stock, too. And out of the 26 analysts covering the stock, 9 rate it a “strong buy,” 16 rate it a “buy” and none are bearish.
Add it all up, and hopefully you see why I didn’t hesitate when asked about Citigroup stock.
This bank is a buy.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
