5 Reasons to Buy Citigroup Right Now

7/28/2019 5 Reasons to Buy Citigroup Right Now

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5 Reasons To Buy Citigroup Right NowMay 9 2013, 16:11 |6 comments | about:C, includes:BAC,COF,JPM,SPY,WFC

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

Large banking institutions don't typically create a lot of excitement among investors. After the near collapse of our

financial system in 2008 and 2009, who could blame investors who decide to pass on companies in the financialsector? However, the financial industry appears to have turned around, and Citigroup (C) appears to be headed to

higher ground, even after setting 2 year highs. Below are 5 reasons why investors should consider adding Citigroup

to their portfolio.

Reason 1: Fundamentals

Citigroup released itsfirst-quarter earnings reporton April 15, 2013. The results were extremely impressive and

showed that the company continues to make the right decisions. During the first quarter, Citigroup generated $20.5

billion in revenue, up just over $1 billion from the same quarter a year ago. The company's net income came in at

$3.8 billion, up from just $2.9 billion for the same period in 2012. The company's performance ratios were also

strong, especially ROE. For the first quarter, Citigroup generated an ROE of 8.2% compared to just 6.% for Q1

2012.

Citigroup also did a commendable job of maintaining its capital ratios, which are taking on greater importance since

the near financial collapse of 2008 and 2009. The first quarter's Tier 1 Common ratio was 11.8% and the Tier 1

Capital ratio was 13.1%. Both were lower than the prior quarter, but still well above industry recommended

standards.

There were some key takeaways from the earnings report that I would like to point out:

1. Citigroup demonstrated sustained momentum in investment banking. This division generated first revenues of $1.06

billion, compared to just $872 million in the first quarter a year ago. That is a 22% increase, quarter over quarter.

2. Citigroup shows continued growth in Citicorp loans and deposits.

3. It also exhibited a strong capital position at 9.3% estimated Basel III Tier 1 Common Ratio.

The company was able to accomplish these feats by focusing on execution and achieving financial targets. One

impressive note is that the company continues to reduce the amount of mortgage delinquencies, as the graph below

shows.
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(click to enlarge)

Reason 2: Strong Industry

While Citigroup has had a heck of a year, its closest competitors have also seen strength. And when an industry is

showing overall strength and the company we're looking at is exceeding that strength, it warrants special attention.

Let's look at JPMorgan (JPM), Wells Fargo (WFC), Goldman Sachs (GS), and Bank of America (BAC).

JPMorgan has returned approximately 21% over the past 52 weeks.

(click to enlarge)

Wells Fargo has returned approximately 15% over the past 52 weeks.
http://seekingalpha.com/symbol/jpmhttp://seekingalpha.com/symbol/jpmhttp://seekingalpha.com/symbol/jpmhttp://seekingalpha.com/symbol/wfchttp://seekingalpha.com/symbol/wfchttp://seekingalpha.com/symbol/wfchttp://seekingalpha.com/symbol/gshttp://seekingalpha.com/symbol/gshttp://seekingalpha.com/symbol/gshttp://seekingalpha.com/symbol/bachttp://seekingalpha.com/symbol/bachttp://seekingalpha.com/symbol/bachttp://static.cdn-seekingalpha.com/uploads/2013/5/9/5844391-13681274628426762-Equity-Options-Guru_origin.jpghttp://static.cdn-seekingalpha.com/uploads/2013/5/9/5844391-13681267510043902-Equity-Options-Guru_origin.jpghttp://static.cdn-seekingalpha.com/uploads/2013/5/9/5844391-13681274628426762-Equity-Options-Guru_origin.jpghttp://static.cdn-seekingalpha.com/uploads/2013/5/9/5844391-13681267510043902-Equity-Options-Guru_origin.jpghttp://seekingalpha.com/symbol/bachttp://seekingalpha.com/symbol/gshttp://seekingalpha.com/symbol/wfchttp://seekingalpha.com/symbol/jpm


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(click to enlarge)

Goldman Sachs has returned approximately 46% over the past 52 weeks.

(click to enlarge)

And lastly, Bank of America has returned approximately 68% over the past 52 weeks.
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(click to enlarge)

So clearly the banking industry has been on fire, especially when compared to the broader market. We can measure

the broader market's performance by looking at the S&P Depository Receipts (SPY). These Receipts have only

returned approximately 20% over the past year, which is a solid return, but not nearly as exciting as some of these

bank stocks. As we will see, while the industry has been strong, Citigroup has been even stronger.

It goes without saying that all of the investors in these companies are jumping for joy with the results these

companies have produced. These impressive performances can be attributed, mostly, to the recovery of the housing

market. The housing market has shown significant improvements in housing prices, new home building, and

housing sales. Because of these improvements, banks have benefited from the amount of new mortgage originations.

Late last year, Bank of America was able to generate mortgage originations of $22.5 billion. Wells Fargo was thelargest originator with$125 billion.

Reason 3: Technical

As I mentioned in the opening paragraph, Citigroup has recently soared to two-year highs. As the chart below

shows, Citigroup has had an unbelievable past 52 weeks.
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(click to enlarge)

During the past year, Citigroup has returned approximately 58%. This is second only to Bank of America, which has

returned over 65%. As we will see below, this is quite an impressive performance for an industry that has been one

of the market's strongest performers.

Reason 4: Best Buy Card Acquisition

Towards the middle of February, Citigroup struck adealwith Capital One Financial (COF) to acquire a portfolio of

Best Buy (BBY) private label and co-branded credit card accounts. The deal was to acquire $7 billion worth of the

cards at book value.

This acquisition will allow Citigroup to continue growing its retail services business after having gotten rid of mostof it after the near financial collapse several years ago. The business unit provides consumer and commercial credit

card products, services, and retail solutions to some of the country's largest stores. This acquisition will add to the 90

million accounts that Citi's division already has.

Reason 5: Major Hedge Fund Discloses Ownership In Citigroup

Jamie Dinan is the hedge fund manager over at York Capital Management.York Capitalrevealed that it increased its

Citi holdings to a total of 2.7 million shares at the end of 2012. A number of other hedge funds also added to their

Citi holdings during the fourth quarter of last year, which shows the professional crowd may finally be warming up

to Citi and the direction it appears to be headed.

Conclusion:

It appears that Citigroup is making all the right moves. The stock has appreciated nearly 60% over the past 52 weeks

on the back of strong earnings, strategic acquisitions, and doing enough to persuade professional funds to invest.

Combine these moves with the fact that the industry is showing broad strength because of a housing recovery, and it

appears that Citi is poised for even more growth.
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5 Reasons to Buy Citigroup Right Now