Citigroup Inc (NYSE:C) has long been hailed as the bank that delivers results. Citigroup did exceptionally well in passing the “Stress Test”; it passed with flying colors. The bank posted an 8.3% Tier 1 common-capital ratio, the highest in its respective industry. These tests show how banks would do under severe economic conditions.
This is just one of the many exceptional qualities that Citigroup possesses as of right now. In the past, Citigroup Inc (NYSE:C) also managed to gain a certain amount of negative press, but it has slowly started to recover from that. All of these signs point to recovery, and below are some additional reasons as to why Citigroup will skyrocket.
Dividend payouts
Many analysts are expecting Citigroup to announce a sizable dividend of more than $0.10/share. Citigroup certainly has the means to do so; it currently has approximately $400 billion in cash. With its dividend currently at $0.04, Citigroup is not attractive as a stock. Many other companies offer a much better payout.
Citigroup Inc (NYSE:C) has finally comprehended this and is most likely going to increase its dividend payout. Citigroup also has the means to initiate a share buyback program, which would in turn attract more investors. These are the two major reasons that would point to a much higher share price.
Fundamentals
Citigroup’s historic price chart displays the exhilarated price rise and fall, especially since 2008. But since then, Citigroups’s price has ameliorated far beyond anyone’s expectations. Citigroup Inc (NYSE:C)’s stock price has gone up $15.37/share, or 48.6%. The stock has not gone up on speculation but rather potential.
Wall Street expects Citigroup to continue to do exceptionally well in the coming days. Its earnings per share have risen quarter-over-quarter from $1.00 (July 16, 2012) to $1.06 (Oct. 15, 2012). For the past two quarters, Citigroup has also exceeded Wall Street expectations of $0.89/share and $0.96/share, respectively.
For the past three quarters, Citigroup Inc (NYSE:C)’s net income has tripled each quarter. Citigroup has a phenomenal balance sheet; its triumph at cutting costs, improved asset position and the probability of higher capital returns are all huge positives going forward.
Catalysts
I am sure that many of you know that Citigroup provides banking and investing services. With the housing market skyrocketing, it can experience more capital gains. Citigroup Inc (NYSE:C) has $481 billion in cash and cash equivalents. The bank is successfully cutting costs and improving its capital position. This should allow for an increase in its dividend, and for Citigroup to gain approval for its share-buyback program, which would be the first such program since 2007.
Litigation
JPMorgan Chase & Co. (NYSE:JPM) has had its fair share of negative press due to its CEO Jamie Dimon. Dimon has been criticized by many members of the press, and has been in a horrible position. That’s because if the company’s position does not improve, he would be in a dilemma which would ultimately remove him from his executive positions. Many still believe that the company is not safe in his hands, and most analysts point out the fact that JPMorgan’s cash flow has dramatically plunged.
JPMorgan continues to face numerous lawsuits even though it has nearly been five years since the 2008 recession. From an investment point of view, this is pretty bad because it would take another five years for JPMorgan Chase & Co. (NYSE:JPM) to fix these legal issues. For example, a major ongoing lawsuit is independent foreclosing in which 4.2 million families were affected. These are just some of the many reasons that lead me to believe that JPMorgan is not as good of a buy as Citigroup.
Although, many people believe that HSBC Holdings plc (ADR) (NYSE:HBC) is a far better buy than Citigroup, I disagree. The fundamentals behind this company are only so good. An example of this would be future growth and lawsuit issues. As far as lawsuits go, in December 2012, a money-laundering case with the U.S. government resulted in HSBC Holdings paying a $1.9 billion fine. While looking at a chart, I spotted a downward trend. This shows that shareholders are still nervous about these ongoing lawsuits.
Another factor includes Europe’s economy, since HSBC Holdings plc (ADR) (NYSE:HBC) is a European bank. A couple of years down the road, if the economy does not improve, Europe could be in a meltdown situation and HSBC’s stock price would massively decline.Some of these reasons lead me to believe that HSBC Holdings plc (ADR) (NYSE:HBC) is not a wise investment decision.
Conclusion
Citigroup is trading at low price-to-earnings multiple. The Fed may also allow Citigroup to initiate a share-buyback program, which in return would bring in a horde of cash and liquidity. I conceive that the bank will appreciate because its fundamentals and catalysts for growth show that it is bound for a return. I also believe that this stock is oversold, and will continue to be a good buy if the housing market continues to improve at these levels.
The article Citigroup Is Cheap Right Now originally appeared on Fool.com is written by Shazir Mucklai.
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