Citigroup Even More Compelling Now Than 20 Years Ago

Twenty years after Black Monday, Citigroup (C) looks even more compelling to me today than when I added it to my newsletter “Explore Portfolio” back in September 1998 at a fraction of today’s price.

click to enlarge

On October 1, citing “dislocations in the mortgage-backed securities and credit markets, and deterioration in the consumer credit environment” Citi said its third quarter 2007 net income would decline about 60% from the year ago $5.06 Billion. Citi said it would:

1. write down about $1.4B of its $57B portfolio of highly leveraged loans
2. lose about $1.3B on the value of securities backed by subprime loans
3. lose $600M in fixed-income credit trading. It also said consumer credit costs rose $2.6B, mostly due to a boost in loan-loss reserves.

CEO Chuck Prince said during the earnings conference call:

Looking ahead to the fourth quarter, while we obviously cannot predict market movements or other unforeseeable events that may affect our businesses, we expect to return to a more normal earnings environment as the year progresses.

Citigroup's plan is to write off all the bad news in this quarter and hope they can look forward to the future. If they over estimated their "subprime meltdown losses" then they can reduce loss reserves in future quarters to report better than forecast results going forward.The fear is they under estimate their losses and more write-downs will follow.

I believe people are selling like lemmings running off a cliff on fear things are much worse. Those of us with the ability to buy through periods of massive fear often end up with superior returns.

Technically, the chart for Citigroup found support on the dashed-blue uptrend line that marked the bottom for two major fear days in 1998 and 2002. The fear from this subprime meltdown is no different.With a dividend of $2.16 and today's closing price of $42.61, Citi pays you a 5.07% yield that is considerably better than the 4.41% 10-year Treasuries currently pay.

Disclosure: Author has a long position in C

Comments

[NormanLepoff, M.D.]

I completely agree with the author. The chart was very informative. Thanks.

[NormanLepoff, M.D.]

I completely agree with the author. The chart was very informative. Thanks.

[NormanLepoff, M.D.]

I completely agree with the author. The chart was very informative. Thanks.

[Farber]

YOUR QUOTE - Those of us with the ability to buy through periods of massive fear often end up with superior returns.

MY QUOTE - "You better have the stomach of a COW to withstand the upcoming crash of CITIGROUP!!" Short it with all you got!!

[NormanLepoff, M.D.]

I guess Mr. Lindstrom and myself do not look too good today. However, I have faith that C will recover and do not regret following the advice of Mr. Lindstrom.

[NormanLepoff, M.D.]

I guess Mr. Lindstrom and myself do not look too good today. However, I have faith that C will recover and do not regret following the advice of Mr. Lindstrom.

[The RealExpert]

Wow, what a miserable call!!!

As for your blog's diclaimer,"The information contained in this blog is not intended to constitute financial advice, and is not a recommendation or solicitation to buy, sell or hold any security. This blog is strictly informational and educational and is not to be construed as any kind of financial advice, investment advice or legal advice." ..while that may well apply to your blog, even if you add it to your newsletter, it isn't going to prevent you from being sued. When you charge for any type of investment advice, even providing portfolios in a newsletter, you can be sued.

Kirk, for anyone to actually charge money for an investment newsletter without any professional investment experience or training is really a joke. This is especially true when you missed the banking collapse. I hope you don't get sued but if I were you I would shut down your investment service and go back to working in a occupation you were trained for. I would also suggest the M.D. Norman also focus on medicine.