We must admit that on the face of it, an investment in Citigroup (C, NYSE) seems tenuous given the continued economic downturn. However, on a price-to-book basis, Citigroup is cheap trading at 0.9 times tangible book value. In fact, among peers, both Citigroup and Bank of America are the only big banks that trade as such which is likely why John Paulson has made such a big wager on their eventual return from the abyss. And with Citigroup’s “liquidation” price of just $4.47, we believe a long-term investment in the bank makes sense from a value perspective. What’s more, with a return to profitability, Citigroup should eventually move beyond the crisis with a tighter business model as it focuses on a few core areas, casting aside the businesses that cost it heavily during the bubble. In the short term, we also think that a planned move towards a TARP repayment and the delay in FASB 166/167 will be enough to boost the stock as the company’s earnings and loan loss provisions improve. As such we rate Citigroup as a buy below $4.12.
Steve Christ, The Wealth Advisory
