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Sometimes a Sub $5 Stock Really Is a Buy

|Includes: Citigroup Inc. (C)

Normally if its under $5 you can count on the CEO to be sending out resumes

As much as I am a contrary trader I don’t normally care for stocks that are under $5 due to the risk of total failure. Normally the risk doesn’t justify the potential reward for me. In the case of the big C I have now changed my mind.

C for me has reached a very low risk to reward level that I don’t see very often.

After the latest dilution C is now able to fund the repayment of TARP which has like anything to do with the government caused it to become less competitive. C may not have wanted to do it this way or repay so quickly but its hard to find something like having government interference motivate better (especially when your dealing with economic mental midgets in Washington).

The Fed is still a major stockholder and that actually is a good thing in two ways. Even if C should be left to fail DC is too stupid to let it happen and since its not their money on the line they won’t sell their stock if its under ~3.25 per share. Its not like Pelosi, Frank and Co uses stop losses with government money. So having the government as my partner is good in that they won’t sell out below a price that I paid for the stock. If the price does go up and the Fed does sell that will signal that the stock is strong enough (and above where I bought it) to not need the government backing the stock anymore. Its as close to a tails I break even heads I win as I have seen in a while. Of course not totally risk free but nothing is when it comes to investing.

There’s no question in my mind that the previous stockholders took it on the chin with the last stock offer but that’s before I bought it and so from my point of view its the same stock but with a proven ability to raise capital at $3.15 per share (and a lot of capital I might add)

The headwinds are also clear. Over 7 billion shares that are currently owned by the Fed can be expected to be sold next year and loan losses that could make a Washington politician blush. Of course that’s why C is selling for under $5 to begin with and this uncertainty is why in my opinion its being offered on sale right now.

The worst may not be over for the company but moving forward if there is some good news or just a lack of more bad news this stock will not feel like such a lotto ticket and I will even dare say we may see double digits for C again around this time next year.

Considering its a very big company with a very well known name with a lot of cash on hand C may just be the group you want to hang with going into the next year.



Disclosure: Long C