CKUA

[Tackler]

It’s time to look at Citigroup (C)
Posted March 19th, 2008 by Eric Cheshier

I had a friend once that found a 1985 Rolex at a garage sale, paid $10 for it and was able to sell it later to a watch dealer for $900. That’s the prime example of finding a ‘diamond in the rough’.

That little anecdote is a metaphor for what every value investor is looking for. Fellow Stockmasters, I have found that bargain basement stock that no one will touch with a ten foot pole. Behold, it is Citigroup (C)!

When I first started looking at Citigroup as a possible buy, all I could think about is how the Financial Sector is a two-ton woman named Bertha, doing a cannonball at the pool at your local YMCA. Ugly.

But as an investor, sometimes you have to take the contrarian approach. Remember the episode of Seinfeld called ‘the Opposite’? George comes to the realization that he should try to do the opposite of everything, so he does, his luck changes and everything begins to go his way including getting a girlfriend, a job with the castanzaYankees and moving out of his parents' house.

Citigroup is the ultimate Opposite play. In the last year, it has gone from a 52 week high of $55.55 all the way down to $20 – a -58% loss. Sure, the Subprime Credit crisis is a mess, but is it really that bad? Will the company go bankrupt like Bear Sterns? This analyst doesn’t think so.

Citigroup’s forward P/E for 2009 is all the way down to 5.98. That’s dirt cheap, even JP Morgan (JPM), the new superhero of Wall Street, has a forward P/E of 10.12. Book Value of Citigroup is 22.74, currently above their share price, while JPM’s is 36.59, currently below the share price.

Granted, Citigroup does have problems. But I like the low short ratio of only 2.4%, I like the Dividend Yield of 6.9%, I like the stake they have in Visa (V) and I like that the subprime mess is already priced into the stock. All that’s left to do now is buy and hold for the long term, because when the short term problems that are holding the stock down are ironed out, Citigroup is going back up to +$30.