Citigroup (C) — a Top Pick for conservative investors for 2023 — is a sprawling, $85 billion multinational bank with both retail and commercial banking arms, observes John Divine, senior financial markets editor at US News & World Report.
Originally founded in 1812, the bank has more than a 200-year corporate history, having stood the test of time through good times and bad over the centuries.
While not the most exciting or unique business in the world, Citigroup does present a unique value proposition at current levels, making it a steal heading into 2023.
During the absolute nadir of the 2020 pandemic-fueled market plunge, practically every publicly traded stock was trading at a major discount to its intrinsic value. March 23, 2020 was the lowest close for US stock market indexes and for many of their respective constituents.
Since that time, the unprecedented uncertainty has had a chance to subside, and many of the largest U.S. banks trade at substantially higher levels than they did during the depths of the pandemic. JP Morgan Chase (JPM) is up 65% from its lowest pandemic close, Bank of America (BAC) has rallied 78%, and Goldman Sachs (GS) has gone meteoric, adding 155%.
Citigroup's return, however, is nothing to write home about, with the stock up a pedestrian 24% in the nearly three years since that March 23, 2020 closing low.
These years of underappreciation have resulted in a rock-bottom valuation that’s simply too exaggerated to ignore: Shares trade hands for 6.4 times expected 2023 earnings. The stock is priced at less than half its book value, while the price-to-book ratios for JPM, BAC and GS all range between 1 and 1.5.
Income investors will also find something to like with Citigroup shares, which pay a 4.7% dividend yield and have a payout ratio of less than 30%. Such a low payout ratio, a percentage of earnings a company uses to pay its dividend, shows that its payout isn't just impressive, it's sustainable.
With legendary investor Warren Buffett showing a vote of confidence in Citigroup as Berkshire Hathaway (BRK.A) began snapping up shares in 2022, investors are also in good company when buying this megabank. As an added bonus, it's even likely you'll get in at a better price than the Oracle of Omaha himself, given Citigroup fell with the rest of the market throughout 2022.
There's simply no reason for Citigroup to be trading for less than half its book value. And as Buffett has often proven, Mr. Market will come to his senses sooner or later.
