Citigroup Stake Hurts Lampert Short-Term

Often compared to legendary Warren Buffett, Jim Cramer's college buddy Eddie Lampert made a big bet on Citigroup (C) that has not looked good in the short-term. A New York Times article yesterday reports:

In August, a hedge fund controlled by Edward S. Lampert, the value-oriented investor, disclosed that it had built a $1.3 billion stake in Citigroup, the beleaguered financial giant.

In the last year, RBS Partners, an affiliate of Mr. Lampert’s ESL Investments, has steadily poured money into Citigroup shares. As of March 31, it valued its stake, then about 15.24 million shares, at $782.6 million. It increased that stake to 24.8 million shares by June 30, giving its Citigroup holdings a value of about $1.3 billion, regulatory filings show.

Citigroup shares closed at $33.41 yesterday. That would value RBS’s stake at $828.6 million, a paper loss of about $471 million from late June.

Not only did Eddie Lampert like Citigroup when it was much higher, his buddy Jim Cramer thought Citigroup was a great stock to buy at $53, collect the dividend and wait for it to go higher with a new CEO or announcement of a break-up. In the July 17th, 2007 article, "Cramer's Take on Eddie Lampert's Stocks," Jim is quoted as saying of Citigroup:

"For the life of me I don't understand why everyone isn't buying Citigroup. You've got a much better than average yield," Cramer said in a June 21 RealMoney blog post. "You have a management that doesn't have a clue and could be gone in an instant, which would mean you could pick up a quick $3 or $4. You have a company that could be a big gainer worldwide, and it is a ROWer (that's rest-of-world, for those who've missed my thousand references to it)."

and

"I am blown away that this stock has been stuck at $53 with all of these positives lurking. This isn't Bank of America (BAC) , where you can only hope that they stop buying things. This is one of those stocks where you could have a dramatic move up on any talk of a breakup or a change at the helm, and in the meantime you will get paid to wait."

With Citigroup, I've made a lot of money in my newsletter explore portfolio buying back in Sept 30, 1998 AFTER it crashed from the mid $30s to the teens. I sold enough shares to be on "house money" but I would have done better to have sold in 2000 when it hit the mid $50s before falling 50% to make a bear market low in 2002. That is not my style.

I like to buy great companies when they go on sale, the same way I buy pants and shirts at Macys (M) after holiday markdowns. After holding all through spring and summer, I am wearing a $58 Merino wool polo sweater-shirt now that I bought last year for $15 the day after Christmas. Even if Citigroup goes lower, you should be able to wrap up some shares now, collect the dividend and brag about how smart you are in a year or two when we get past this subprime mess and the stock has recovered.

Since 2002, Citigroup rallied again from the mid $20's to a new all time high in the mid $50's before the sub prime meltdown crushed the stock into the mid $30's. Wednesday, Citigroup closed at $33.41, at another major support line shown on the graph below.

I've held all along and collect the dividend. I hope and believe this is yet another great buying opportunity, but I'll get no "trader points" for being a long term buy and holder on Citi, which is what I often do once I am on "house money" for stocks.

Disclosure: I also own Citigroup in my personal portfolio. I may add shares here but I have yet to decide. Wednesday I added to my SPY position using profits taken in my international mutual funds. SPY is the ETF for the S&P500 which has a significant weighting in the financial sector.

Comments

[Uncle Bill]

You liked the stock three weeks ago, and you're down almost 25% since. It's hard to do worse than that. And it's easy to see why -- you're analysis is woefully lacking in any financial specifics. No wonder there's no information in your bio about who you are. What do you want to bet Lamper won't take any loss on his C stake? It's called "parking stock," and it's an old trick. Cs trying to park its bonds right now (how do you think MS reduced its CDO position so dramatically this quarter?). You are wrong here -- this is the big one.

[KirkLindstrom]

I've liked Citigroup since Sept20, 1998 through its ups and downs. The point of the article is these massive crashes on fear they will go under have been great times to buy or add to positions.

As for my profile, I think I need a certain number of articles here before SeekingAlpha lets me add one. They have a link to my blog where there is information about me including a newspaper story and testimonials.

www.blogger.com/profil...
kirklindstrom.blogspot...

Now if the people inside Citi are LYING about the future...ala Enron or WorldCon... then you may be correct.... but they say they will return to normal earnings in 2008 and the dividend is safe.

[CrossProfit]

Is that 'WorldCon' or do you mean WorldCom or is it a pun?

[rman]

banks are highly leveraged and this is what drives earnings. the most trivial analysis would yield an earnings per share of no more than $2 per share going forward for Citigroup. never confuse inflation with earnings - as inflation becomes a bigger problem, banks will suffer, but that is based on analysis and not praying some smart guy did the work for you and you can follow him.

[rman]

banks are highly leveraged and this is what drives earnings. the most trivial analysis would yield an earnings per share of no more than $2 per share going forward for Citigroup. never confuse inflation with earnings - as inflation becomes a bigger problem, banks will suffer, but that is based on analysis and not praying some smart guy did the work for you and you can follow him.