We recently compiled a list of the Billionaire Lee Cooperman Says The Market Is Expensive But These 10 Stocks Are Cheap. In this article, we are going to take a look at where Citigroup Inc. (C) stands against the other cheap stocks.
Leon Cooperman recently shared his conservative outlook on the economy and discussed stocks that he is monitoring during a CNBC interview. He believes the U.S. is heading toward a fiscal disaster due to a lack of attention on rising debt. He also noted that nothing seems overvalued if a 10-year bond is valued at the current rate.
“My assumption is that we are headed into a fiscal disaster in our country. There’s nobody focusing on debt creation in the economy. My second assumption is that nothing is overvalued if a 10-year bond belongs at the current rate of 3.9%.”
Cooperman compared this to the 1972 Nifty Fifty period when government bonds were at 6.5%, and several companies which had high earnings multiples, eventually went bankrupt. He pointed out that these companies, despite their high valuations, were acquired by JP Morgan.
“In the Nifty Fifty period of 1972, the government bond went 6.5%, Avon products was 65x earnings, it has declared bankruptcy. Eastman Kodak went bankrupt with 48x earnings. IBM at 37x earnings got bankrupt. These are companies that are actively being bought by JP Morgan in the US trust.”
Cooperman emphasized that with the 10-year bond yield at 3.932%, nothing appears overvalued. He expects interest rates to remain low and anticipates a Federal Reserve rate cut in September, likely by 25 to 50 basis points. He expects that this will lead to a slow positive movement in the yield curve, with the 10-year bond yield increasing and its price declining.
Leon Cooperman also mentioned that he believes the current environment is more of a “market of stocks” rather than a unified stock market. Additionally, he expressed concern about the health insurance sector, noting that these companies are trading at low multiples, even though they have been generating excess capital and buying back their own stock. Cooperman then emphasized that he is motivated by valuation levels when assessing investments.
Leon Cooperman follows a value-focused investment strategy, concentrating on undervalued stocks and using a top-down approach to select sectors. He combines fundamental analysis with a bottom-up approach to build and manage portfolios. Omega Advisors, which handles over $3.3 billion in assets largely from Cooperman’s own wealth, has approximately $4.37 billion under management for seven clients. The firm’s Q1 2024 13F filing showed $2.4 billion in managed securities, with its top ten holdings making up 61.09% of the portfolio.
Our Methodology
In this article, we review Leon Cooperman’s latest CNBC interview and highlight ten stocks he owns and mentioned. We also provided analyst ratings, key details about each company, and the number of hedge funds investing in them.
Why focus on the stocks that hedge funds invest in? Our research shows that following the top picks of leading hedge funds can result in returns that beat the market. We use this strategy in our quarterly newsletter, where we choose 14 small-cap and large-cap stocks each quarter. Since May 2014, this approach has generated a 275% return, outperforming the benchmark by 150 percentage points. (see more details here)
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Citigroup Inc. (NYSE:C)
Number of Hedge Fund Investors: 94
Citigroup Inc. (NYSE:C), based in New York City, is a major global financial services company. Citigroup Inc. (NYSE:C) offers a broad range of financial products and services, including banking, investment, and wealth management. With a large network of branches and subsidiaries around the world, Citigroup Inc. (NYSE:C) serves millions of clients through its consumer, corporate, and investment banking segments.
When asked about Citigroup Inc. (NYSE:C), Leon Cooperman mentioned that he currently owns shares in the bank. He noted that banks face structural issues and are hesitant to lend, despite that being their primary business.
“I own Citi, I own it right now. Banks have structural problems. They’re afraid to lend to people, and that’s the business they’re in.”
Citigroup Inc. (NYSE:C) is seen as a strong investment due to its solid capitalization and well-balanced business model. According to IP Banking Research analysts, even if a U.S. recession leads to challenges like falling interest rates, higher loan losses, and increased trading volatility, Citigroup Inc. (NYSE:C)’s diverse business activities and cautious financial practices help shield it from these risks.
Citigroup Inc. (NYSE:C) is also working on improving its efficiency through restructuring and has made notable progress in enhancing credit quality and reducing bad loans. With its stock priced lower than many of its peers, Citigroup Inc. (NYSE:C) offers a promising opportunity for value investors. Analysts expect that as the bank continues its strategic improvements and investor sentiment potentially rises, Citigroup Inc. (NYSE:C)’s stock could experience significant gains.
IP Banking Research projects Citigroup Inc. (NYSE:C)’s value at $80 by 2026, based on a valuation of 0.8 times a $100 target value. This estimate is conservative, assuming the bank will achieve a return on tangible common equity (ROTCE) of about 10% by 2026, which is lower than the management’s guidance of 11% to 12%. Despite this conservative forecast, the analyst remains very bullish on Citigroup Inc. (NYSE:C) and plans to increase their investment if market conditions present further opportunities.
Diamond Hill Capital Long-Short Fund stated the following regarding Citigroup Inc. (NYSE:C) in its first quarter 2024 investor letter:
“Other top Q1 contributors included Meta Platforms, Citigroup Inc. (NYSE:C) and Walt Disney. Banking and financial services company Citigroup’s restructuring efforts are ongoing, and it continues remediating regulatory issues and building capital in anticipation of increased requirements. The company expects to see expenses fall meaningfully in the second half of 2024, bolstering the outlook from here.”
Overall C ranks 2nd on our list of the cheap stocks to buy. While we acknowledge the potential of C as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than C but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
