Sell Citigroup: Bank Still a Falling Knife

04/08/2014 5:10 pm EST

Focus: FINANCIALS

Jim Jubak

Founder and Editor, JubakPicks.com

At the end of last month, the fed rejected this bank's proposed capital plan, and that, coupled with the drawn-out affair that will most likely result from two major investigations into the bank's practices has caused MoneyShow's Jim Jubak to recommend selling the shares, as of today, April 8.

When last I visited Citigroup (C) on March 27, the day after the bank had failed to win approval for its dividend and share buyback plans from the Federal Reserve, I wrote that I would hold the shares even though the Fed had flagged very serious problems with the bank's internal controls. Since then, the Fed's criticism on Citigroup's internal controls has been seconded by news that the FBI and the US attorney's office in Manhattan have opened a criminal investigation into the $400 million fraud at the bank's Mexican unit, and the bank's disclosure that it faced another investigation from federal prosecutors in Massachusetts into the bank's safeguards to prevent money laundering.

Today I'm going to recommend selling these shares.

Partly, that's because these two investigations are going to be with the bank for a while, making any recovery in the stock price a relatively drawn-out affair. Investors in Citigroup are going to need a lot of patience and I don't see the Federal Reserve granting quick approval, under these circumstances, to a revised Citigroup capital plan.

But a bigger reason to sell, in my opinion, right now, is a change in the risk/reward profile of the market as a whole. The recent sell off in momentum stocks—which now looks like it's spreading to consumer discretionary leaders—makes me want to raise cash for the inevitable bounce back in these stocks. I don't know when we might see that bounce—and I'm not buying yet, since I think we're still in “catch a falling knife” territory. But when stocks such as FireEye (FEYE), or Palo Alto Networks (PANW), or Incyte (INCY), or Chipotle Mexican Grill (CMG) do bounce, the gains will be bigger and quicker than those in holding Citigroup.

As of April 8, I'm selling these shares out of my Jubak's Picks portfolio with a gain of 11.7%, since I added them to the portfolio on October 26, 2010.

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund Jubak Global Equity Fund , I liquidated all my individual stock holdings and put the money into the fund. The fund did not own units of Citigroup as of the end of December. In preparation for closing the fund at the end of May, as of the end of March I had moved the fund's holdings almost totally to cash.

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