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Citigroup: Buy The Dip, It Will Not Last

Jul. 11, 2017 7:31 AM ETCitigroup Inc. (C)21 Comments


  • I have been bullish on Citigroup for quite some time.
  • In fact, my most recent prognostication of a significant dividend increase has come to fruition.
  • Even so, no investment thesis is without risks.
  • In the following piece, we delve into the potential headwinds for Citigroup going forward.

Citigroup (NYSE: NYSE:C) has more than doubled since I first recommended the stock at $31.27 in 2012.

Source: Finviz.com

Nonetheless, there were many ups and downs along the way.

Source: Finviz.com

With the bank clearing the latest qualitative CCAR with flying colors, I see much more upside for the stock in the coming years. Nonetheless, some short-term headwinds have recently materialized that can hamper the stock's ascension in the short term.

Yield curve not cooperating

The spread between long- and short-term bonds is near its flattest in the last five years.

Source: YCharts.com

The 10-2 yield curve has begun to flatten again recently. I expected the spread to increase as the Fed continues to raise rates. Nevertheless, the recent news that inflation is under control could cause the Fed to hold off on plans to keep raising rates. If the Fed comes out and states it is not going to raise rates again in 2017, this could be the catalyst for a pullback in the stock.

Citigroup benefits greatly from a rising rate environment. This allows the bank to earn even greater profits on the difference between the cost of funding and lending rates otherwise referred to as the net interest margin (NIM). Taking into consideration the size of Citigroup's balance sheet, a small shift in interest rates can have a big impact on the bank's bottom line. The fact the Fed stated inflation is under control in its latest meeting is not good news for Citigroup.

Auto loan showing signs of cracking

Cracks in auto credit have begun to surface. Some see this as the canary in the coal mine regarding the health of the U.S. economy. Longer, seven-year loan terms and a crackdown on subprime lending due to an increase in default rates are signs of a top. What’s more, the sales of the

This article was written by

David Alton Clark profile picture
I have been a Seeking Alpha Contributor for over a decade. I became a CNBC Contributor in 2015 for having the #1 track record according to stock pick returns. I was also featured in BARRON'S for being the Top Performing Financial Expert according to TipRanks from 2010-15. In 2020, I was named "Blogger of the Decade" on Yahoo Finance for having the best stock picking track record from 2010 to 2020. In addition, I am a currently a licensed REALTOR® in the state of Texas, a former FINRA registered OIl & Gas securities representative, banking industry executive with Citibank, and auditor with EY, a major accounting firm. I received my BBA in Accounting (With Honors) from the University of Texas - San Antonio. 

I am a self-made man and started out my career in the US Army's 10th Mountain Division as a Mountain Infantryman. I am a member of the DAV and a Disabled Veteran. I  have managed my own portfolio for the past 30 years. This includes successfully navigating the 2000 and 2008 bubbles, so I completely understand the full cycle the market can take. People who know me in investing circles call me the "Bubble Surfer" for my ability to preserve capital during times of duress. My professional background has provided me with an intimate knowledge of corporate financial statements and how companies actually make money. This expertise and wisdom is the value I wish to share with you. Here is a profile of me featured in the Globe and Mail detailing my career.

DISCLAIMER: David Alton Clark is not a Registered Investment Advisor or Financial Planner. The Information in his articles and his comments on SeekingAlpha.com or elsewhere to be used as a starting point for your own due diligence. Do your own research and always consult a registered investment Advisor.

Analyst’s Disclosure: I am/we are long C. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (21)

when is the investor day? anyone please
Jeff, here's a riddle for you....How many tulips in a bitcoin?...........Just kidding, although I do think that's gonna be the source of serious losses in the future....Maybe the next collapse. Too many serious people and greedy ones too hitchin' their horse to nothing. Some are making great money it that now, just like the dot com bubble....I'm too cowardly for that risk.
ancient medieval history....10 years ago?? Really? I think it's important to remember history, but that seems to me to be irrelevant.
I think Citi is going to surprise the trash talkers from now on....after repatriation they will be buried in cash....45B less taxes= 35B....Special dividends are in our future....also, I think they may be allowed to add some of that repatriated cash to its buy back fund. Not sure about that. I love this stock. The set backs have allowed me to continue to add to my account. I have been buying since 1.50 per share ($15.00 reverse split) and the trash talkers have continued to spew their garbage. Investing in Citi stock has been like climbing a ladder and for every 2 steps up you take 1 step back. Eventually....well, you can see what the outcome will be.
User 17211682:
Here's some "trash talk" for you: ten years ago, almost exactly, then Citigroup CEO Chuck Prince famously said, "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing." Within months of this statement, Citigroup was faced with failure and had to get a taxpayer funded bailout. The share price fell from the $50s to the low single digits. Fast forward to today, we have financial leverage ratios and asset prices reaching all time highs, interest rates still near zero, and the world's central banks are starting a tightening cycle. We will indeed see what the outcome will be.
Jeff Anderson profile picture
After the tulip mania of 1636-1637 I decided I'd never, ever, ever buy tulips again.
hope for future is all we have
kjseagle1 profile picture
My july 63.5 puts are looking good
I am long C. I have no big expectations, just for diversification of the portfolio, but I will sell it and invest more in payment systems. As the future will be cashless the payment companies will grow more than banks.
I too agree with tjmatters. It is not the same bank as before. Buying C today is like investing in an IPO of a truly international bank at book value price (pls note that it's tangible PB = only 1x). Don't get emotional about stock. Only stupid moron will sell the stock right now. Mind you: There is a blackout period (5 weeks prior to and 48 hrs after) for the earnings announcement this Friday. So the massive buyback has not even started.
Good article.
I agree with tjmatters.

Anyone who is going to continue to look in the rear view mirror will miss the opportunity and not gain. This is a new bank with real leadership headed by experienced bankers. This has not been the case from 1999 to 2014 when the bank was run by inexperienced people who were deal makers or a lawyer.
The stock should go up as the buybacks continue which will enhance its value. But let us not forget, Citi will have to take a write-down if the tax law changes, as expected. This write-down could be as much as much as $ 6-7 billion?
and in return you will most likely collect a one time dividend upon repatriation. not to mention they get no value for their deferreds
I'm not interested in 2007. I'm interested in 2018 and beyond. This is not the same bank it was 10 years ago. Get that anchored bias out of your head, or shall we say: Get your head out.

We had a banking panic in 1907(The "Panic of '07") another one in 1933 (the great depression where all the banks had to be closed), another one in 1991 (the S&L wipeout), another one in 1998 (the "Long Term Capital" collapse) and another one in 2007 (the "sub prime mortgage" crisis). We are reading in the press that the financial system is now just as levered up as it was in 2007. Do you really think that it could never happen again? "those who do not study history are doomed to repeat its mistakes", is the old saying. By the way there were also banking panics in 1819, 1837, 1873 and 1893. Banking panics seem to happen at regular intervals, don't they.
Jeff Anderson profile picture
9 "panics" in 200 years. If you are not careful about studying history you may be doomed to repeating the mistake of not being invested the 191 years there were no panics.
the dip won't last?? Citigroup has been in a continual dip since 2007, when the shares were over $500 adjusted for the reverse split. Look at a 20 year chart. (google finance has one) Still struggling to get off the mat.

no positions
A static view to dynamic forces at work in the marketplace. My advice is to never take a position in any stock.
Sorry M but then why follow SA? Just read novels. Never in any stock!
My bad. My comment was meant as a retort to the previous post.
RD2001 profile picture
looking at the charts, what dip?
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