Amid the current credit crisis, Citigroup (C) is one of the most disdained stocks around. The shares have been pummeled severely, down from a 52-week high of 54.49 on June 18, 2007, to 20.28 on June 10, 2008—after closing at a 52-week low of 17.99 on Mar. 17, 2008. So why do I and a few others believe that it is an opportune time to buy shares of the financial-services giant?
First, let's get the lay of the land on the besieged Citi.
Oppenheimer (OPY) analyst Meredith Whitney swears Citigroup is "past the point of fixing." She is one of the most vocal and often-quoted among the seven Wall Street analysts who are gravely critical of Citigroup and recommend that investors dump the stock. The other big bears are Michael Mayo of Deutsche Bank (DB), William Tanoma of Goldman Sachs (GS), and Betsy Graseck of Morgan Stanley (MS).
Undervalued?But there are six brave bulls among the 18 Wall Street analysts who track Citigroup. The group includes Richard Bove of Ladenburg Thalman (LTS), who figures Citi is worth $31 a share; Vivek Juneja of JPMorgan Chase (JPM); and Jason Goldberg of Lehman Brothers (LEH), who also figures the stock is worth $31. The rest of the analysts tag the stock a hold.
And then there is Robert Olstein, president of Olstein Capital Management, who vehemently disagrees with the critical comments of Oppenheimer's Whitney. He predicts that shares of Citigroup will double in price over the next 12 to 24 months and then advance another 100% to 200% over the following three to five years.
What's behind his extraordinary optimism amid the negative buzz on the stock? "We have done tons of research work on Citigroup and we believe it is one of the most undervalued stocks, if not the most undervalued, in the besieged financial world," says Olstein. Citigroup is the largest holding in Olstein's portfolio.
Olstein has proved his worth many times as a savvy stockpicker and analyst, who isn't fearful of going against the crowd—and winning big in the end. In 2000, when most everyone was down on J.C. Penney (JCP), he bought shares of the retailer at $23. The stock fell in six months—to $9—but eventually climbed back up to the 70s, when he bailed out. Olstein did the same with another household name: McDonald's (MCD). He bought shares in 2003 when few wanted the fast-food giant, then trading at $11. He sold when it soared to $65 a couple of years later, although he retained some shares, which he still holds.
Appreciation Potential"Although there are still more write-offs and extraordinary credit provisions to come at Citigroup, the biggest portion has been taken," says Olstein. Amid the write-offs, earnings from the company's operations will remain "hidden" for the next 6 to 12 months, but should start to show up sometime in 2009, he figures. "We believe Citigroup's core earnings power is north of $3.20 a share, and this should become apparent in the second half of 2009 and realized in 2010," says Olstein.
"We believe the stock's current price represents a rare three- to five-year opportunity, which could result in a huge win for investors who buy the stock at its current price," says Olstein.
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