CitiGroup Inc. will be OK
11-30-07: We apologize for the lack of post in recent months as things have been crazy. We hope to post more of our thoughts after the New Year. As we close out 2007, one thing is clear; the stock market remains an exciting investment vehicle. The roller coaster ride is normal and should be viewed as positive. Markets will rise and will fall. This is all perfectly normal. When it rises, keep in mind that it will not last for long. This is why we encourage folks to take profit whenever possible. The philosophy we have been using is 20 percent. If one can earn 20 percent on their investment, you have essentially beaten the rate of inflation and some. On the flip side, market turmoil also provides us with opportunities to purchase some of the best companies on the cheap. On stock we believed is worthy of consideration is CitiGroup Inc (NYSE: C)
Despite the turmoil in the financial industry, we believed CitiGroup Inc. will get its act together in the long term. In the short term, expect a lot of volatility. As for what we see over the horizon, we foresee some layoff to control cost and get business in line with the reality of the market. We expect announcement of new strategy to focus on growth areas while deemphasizing certain areas of the business. We also expect to see high profile executives leaving to give the impression that things are changing. These moves would all be viewed as positives from Wall Street’s perspective. Hopefully when these announcements come, the stock will also move up.
In our view, the current condition makes this stock very attractive as a value play. We decided to enter CitiGroup a few days ago when it was trading at $30 per share. Our main rational for entering at that price was the stock appeared to have hit bottom as it was trading around its support level despite negative news (support level between $29 and $31). The stock was also 40 percent off its high. We figured given these factors, it was relatively safe to enter as most of the negatives news had been factored into the stock. Fortunately, as luck would have it, the day after we bought the stock, CitiGroup announced it would receive 7.5 billion of capital from Abu Dhubai. The news helped stabilized the stock.
Positive news today, further rate cuts in December is almost certain as the Feds are very concern the U.S economy will fall deep into a recession. We expect another 25 basis point at the next FOMC meeting. This has already been priced into the market, evident by the recent rally in the last few days. More rate cuts should entice consumer to spend and hopefully have some affect on the long term rates such as mortgages. On good news is unemployment rate is expected to remain low in 2008 (4.8 percent), this should also help keep the consumer spending. In our view, the sky is certainly not falling just yet. Best of luck!!
