Citigroup Stock Outlet Positive
Citigroup Inc shares have had a rocky September, but considering how much they had already runiup, that's not a complete surprise. For people thinking of investing in C shares, the outlook seems relatively positive. The company, although still deeply troubled in many ways, shows encouraging signs as well.
First, let's look at the bad news. Citigroup is still greatly affected by the financial crisis. The company holds a number of toxic assets and is exposed to both consumer and business credit woes. Unemployment, which hasn't improved as much as many would have hoped, could continue to haunt C's huge portfolio of loans.
If consumers and businesses continue to default on loans, the effect on Citigroup could be horrible. To a degree, this pessimism concerning C's loan portfolio is priced into share prices.
Like most bad news, this information contains a nugget of good news. If the consumer and business segments stabilize, then C could be very undervalued. Also included in the bad news for Citigroup is the fact the banking giant is a reluctant partner of the government. Issues such as executive compensation are now subject to scrutiny. This could make it harder for the company to attract talent, or to overpay themselves, depending on one's perspective. In any event, going against competitors who are not being tightly controlled by the government could prove difficult the longer C remains beholden to Uncle Sam.
In the good news department, due to the vast structure of the company, Citigroup really does have enormous assets under its control. The company is aggressively selling many of these assets in order to raise capital, presumably to shore up finances and pay back taxpayers. Actions like this should have positive effects on the company's bottom line, as long as they don't sell great revenue producing units. As part of a global re-positioning, the asset sales alone can help unlock trapped value in C shares.
Also good news for the company is its core banking business to both consumers and businesses. The company has scope that very few rivals can hope to achieve, and the size of the banking operations should ensure positive cash flow as long as the customers keep paying.
Also good news for Citigroup is the company's position in fast growing Asia. C promises to be a major player in Asian finance for years to come. If the Asian strategy pans out, it could offset losses in the North American market while the company improves operations.
Right now, for those of us who have taken a long position in Citigroup, things look good. Once the effect of the dilution becomes final and the current turnaround by CEO Vikram Pandit take hold, the chance for real appreciation in C shares is likely. Of course the road to riches is still fraught with peril, but a number of good signs are coming out of the company that indicate the ship is now sailing in a profitable direction. As more time passes and the financial system improves, the potential for shares bought in 2009 to appreciate seem obvious.
Courtesy: WSE
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