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To dance with a devil?



July 25, 2009 – Comments (7) | RELATED TICKERS: C

I have to admit that I am tempted. What tempts me? Booze, tobacco, flesh stocks? No. Citigroup (C). Yes, I consider C to be a devil. I don't like credit card companies as a group. I think in the past they have exhibited predatory behavior towards their client base. Now, with this in mind, I have to admit that on the surface C looks like it is destined to go back to a traditional bottom on $30 when all this mess shakes out. At the time I write this it is going for just shy of $3.00. Even if it takes ten years for it to go from $3 to $30 that would be a great rate of return. I am tempted to throw just a few hundred dollars into C as a "gamble. I want to know your opinion if you think I am "speculating" down the right road. Would you do this? Have you done this? All input of a constructive nature is welcome.



7 Comments – Post Your Own

#1) On July 25, 2009 at 9:19 PM, Seano67 (23.55) wrote:

Sure. I mean why not? If it's just a few hundred dollars and you can afford to do that and don't mind the fact that that money might be parked there as a longterm investment for a period of years, then why not? I don't think it's a case of speculation so much, because we already know that Citigroup is not going to go under, and that at some point the overwhelming likelihood is that they're going to work through their issues, pay back TARP, reinstate the dividend, and so on and so forth, and the stock will rise. And it's still so cheap. So what the heck, why not?

I have done this, though not with Citi (not yet anyway). But I bought into Barclays, Lloyds, Allied Irish and Bank of Ireland when they were very close to their lows, and ***knocking on wood so as not to jinx myself***, I've already made nice returns on all of them, and some of them are arguably in worse shape than Citi (Barclays is actually pretty damn strong though). I took profits on Barclays far too early unfortunately and missed a big, big run up, but the rest I have held and will most likely continue to do so for at least awhile. And it was the same thing, I didn't sink a large amount of money into any of these things due to the element of risk, but at this point I sure am happy I did put money into them.

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#2) On July 25, 2009 at 9:40 PM, dibble905 (< 20) wrote:

Purchasing the underlyer means you're putting your capital at risk. If you feel like it's a gamble, it's probably better to play it as if you're going to lose it all if it goes bust anyway - meaning, options are probably the better risk/reward vehicle.

Buy some long-dated call options on Citi, and depending on your experience level, you might do some combination/strategy with it.

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#3) On July 25, 2009 at 10:02 PM, rd80 (95.48) wrote:

Barron's has an article this weekend advocating a similar approach.  According to the article, the when-issued shares (C-WD) from the upcoming preferred conversion are the way to play it since they've been trading at a discount to C. They put a $6.50 target on it for sometime in 2012 by putting a 10 PE on peak 2005 earnings with the fully diluted share count.

C is about to get diluted big time from the preferred conversion, but that's well known so it should be priced in the shares.  I suspect your $30 floor doesn't account for the share dilution.  After conversion, there will be something like 23 billion shares vs. 5.5 billion now.

One big concern is that the new biggest shareholder's interests might not be aligned with other shareholders.  I think there's a very real risk that the government could look at Citi as a toxic asset sponge in much the same way they're using FNM and FRE.

I wouldn't do it with money you can't afford to lose.  Good luck if you decide to go for it.

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#4) On July 25, 2009 at 11:49 PM, awallejr (33.35) wrote:

I've done it with real money. I've accumulated shares and have been just putting them in the "vault."  I have a very long term view on the company.  What the heck I have my mortgage held by them, so it feels like I am paying myself everytime I write that monthly check.

You could buy options, but the stock itself is so cheap why bother. At least with the shares there is no expiration.  One thing I have been doing is actually selling C puts too (the December $2 and $3 ones).  The premiums I got were nice and makes the stock even cheaper should I ever be called to buy the shares.  And if I don't get called, I will rinse and repeat.

While there is alot of dilution through the conversions eventually a good chunk of that (the Govt's share) I would think will be bought back.

Long long term hold. 

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#5) On July 26, 2009 at 10:14 AM, MoneyWorksforMe (< 20) wrote:

One big concern is that the new biggest shareholder's interests might not be aligned with other shareholders. 


In certain respects that may be true, however, I strongly believe it's in the feds best interest to get this company back on its own two feet ASAP. If the company's the fed has already taken large stakes in continue to ail, doubt about the overall health of our financial system, and more importantly the feds strategy will remain, and eventually grow, eroding consumer and investor sentiment which will further delay any prospects of an economic recovery. 

The 17 billion share dilution has already expired as of 7/24. This means investors will no longer be performing an arbitrage trade with the stock and the movement of the stock's price should become more "normal" going forward. Between now and Q3 results, the stock should move swiftly on reports regarding unemployment and housing.

I believe Citi to be a good long term hold, particularly now that the stock dilution is a thing of the past. Upside potential far outweighs the risk associated.


Disclosure: I own a small position in Citi stock.

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#6) On July 28, 2009 at 2:49 PM, catoismymotor (< 20) wrote:

I appreciate the input from each of you. I am still trying to decide if this is something I wish to do. I am leaning more each hour towards doing it.

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#7) On July 29, 2009 at 1:59 AM, awallejr (33.35) wrote:

Stock has risen alot percentagewise since we posted.  You can do 1 of 3 things.  Simply buy.  Wait to see if it drops again to middish $2.  Or sell the December $3 puts (will get about .55 per put) so if you get called to buy come December and that only will happen if C is under $3 then) your net cost would be 2.45 (assuming a .55 premium received).

Personally I would suggest just to keep buying some every month as long as it is around  or under $3.  Slowly accumulate it then sit on it for years.  That is what I have done and will do, tho I play the puts as well.

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