Banking on Citigroup

08/14/2019 5:00 am EST

Focus: FINANCIALS

Crista Huff

Editor, Cabot Undervalued Stocks Advisor

There’s an art to buying low during market corrections. It’s fun to buy stocks while they’re “on sale”, but the excitement can turn into frustration if the stocks don’t begin to rebound within a few weeks, asserts Crista Huff, editor of Cabot Undervalued Stocks Advisor.

In that light, Citigroup (C) is the Buy Low Opportunities Portfolio stock that seems to offer the best combination of low market risk and high total return potential.

Citigroup — with a yield of 3% — is a global financial company that serves consumers, businesses, governments and institutions in 98 countries.

In mid-July, Citigroup reported a good second-quarter that beat Wall Street’s revenue and profit expectations. Strength in consumer lending, and lower expenses, tax rate and share count contributed to the quarter’s successes.

Ongoing aggressive share repurchases have reduced the common share count by 10% during the last four quarters, with tangible book value rising 10% during the same period. The company also raised the quarterly dividend from 45 cents to 51 cents per share.

Citigroup is an undervalued, large-cap growth & income stock. Citigroup has much better 2020 earnings growth prospects than Bank of America, Goldman Sachs, JPMorgan, Morgan Stanley and Wells Fargo. Wall Street expects Citigroup’s EPS to grow 14.4% and 11.8% in 2019 and 2020. The P/E is currently 8.9.

The share price could easily dip to 64, and possibly 62. More importantly, the post-correction rebound could bring the stock up toward 77, where it last traded in January 2018, potentially offering new investors up to a 22% capital gain in the next 6-18 months.

JPMorgan recently raised their target price on Citigroup from 77 to 81, while Barclays and Keefe, Bruyette & Woods each recently raised their price targets on C to 86. Buy C now. I rate the stock a "Strong Buy".

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