Citigroup (NYSE: C) stock has been stuck in a slump for nearly two years, after collapsing to historic levels following the sub prime meltdown and financial crisis. As the firm continues to stabilize and shed non-core assets, their business model has also become more firm and may be showing signs of a turnaround.
The stock has been slow to respond, but in recent months analysts have become bullish on Citigroup, recognizing it is trading at a discount to book value, and speculating there is untapped earning potential in many of it’s businesses. It has been more than seven months since Citi shares last breached $5, and more than 15 months since they closed at more than that amount. The stock hasn’t traded consistently at more than $5 for about two years. During the height of the financial crisis in 2008, Citi shares crashed from around $30 to less than $7 and eventually traded for less than $1 as the firm appeared at the brink of collapse. The federal government prevented such a catastrophe by investing $45 billion into the bank.
Although shareholders have been diluted through the multiple government infusions, the firm has also paid back many of it’s debts and is now led by credible leadership. The tide of confidence also seems to be turning in their favor. Last week, bulls rushed back into the stock market, with a particular focus on cheap bank stocks. The reasoning: Treasury yields are too depressed, sovereign bonds are too scary and battered financial stocks represent something of a middle ground in the risk-reward spectrum. Even Bank of America (NYSE: BAC), which hit a new 52-week low of $10.91 on Tuesday over speculation about a Wikileaks scandal, was up nearly 9% from there by Friday’s close.
If, as expected, the government completes its exit of Citigroup by early 2011, there’s a good chance 2011 could see sustained upside in the stock — particularly as the bank begins executing on a growth strategy abroad while getting rid of most of its “bad bank” U.S. assets. Those asset sales, the argument goes, will generate more capital to put toward higher-yielding investments abroad and the restoration of Citi’s dividend, which was extinguished in 2008.
