I’m still behind my Best Stocks pick of Citigroup Inc (NYSE:C). I guess what I’m betting on here is that the economy will get better and that interest rates will rise. They haven’t done that yet, which is surprising everybody.
The last time I wrote about Citigroup was in December, and interest rates are certainly up a little since then, but we have to wait and see what happens. The Federal Reserve is promising two to four rate hikes this year … but the Fed is the Fed! You never know.
C Stock and the Future
Still, I’m betting that the rates will rise, at least a little more, which would cause the banks to see a greater improvement in their returns — especially the big banks.
Now, smaller banks have a problem: There are a lot of bankruptcies in the oil industry, and that influences the little banks more than the bigger ones. So, in a sense, my Citigroup recommendation is also a bet that money will continue to flee smaller banks and go into larger ones.
But the reason I continue to like Citigroup is that it’s probably one of the most undervalued bank stocks — with the best chance to appreciate. Its total assets are very large, compared to its market price; its price-to-book-value is 0.8. And that’s because it has a lot of banks outside the United States.
Europe has had a lot of trouble, which has kept a thumb on Citigroup. But the European economy is improving, and its stocks are doing better than ours are, so we may see that situation change.
Plus, April is usually one of the best months in the year, so I’d expect to see improvement starting in this month.
Another factor is President Donald Trump. He’s been working to get deregulation … and the financials, of course, did see plenty of new regulations after 2008. I don’t think they’re going to get rid of all of it, but any kind of relief is going to be helpful, and there’s still plenty of 2017 left.
Speaking of post-crisis changes, C stock is on the verge of completing one such measure. After 2018, they will be officially finished servicing mortgages and will focus on originations — a cost-saving initiative. So, before a positive catalyst like that hits, you want to buy the stock while it’s down.