2 Ways Citigroup Inc Is Outperforming Its Peers

With rapidly improving fundamentals and a very low valuation, Citigroup is looking like a great buying opportunity.

May 14, 2014 at 7:00AM

Citigroup (NYSE:C) is one of the cheapest large banks in the market, trading for just 85% of its tangible book value. Despite this, the company has improved tremendously since the financial crisis, and continues to do so at an impressive pace. In fact, there are a few big ways Citigroup has outperformed its more "expensive" peers like Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM).

Its assets are worth much more than they used to be
Citigroup's tangible book value, or the value of all of its tangible assets, has grown at an impressive pace over the past few years. In the company's recent earnings report, it revealed tangible book has grown by 8% in the past year to $56.40 per share. Over the past four years, Citigroup's tangible book value has improved by nearly 50%!

In contrast, the growth in intrinsic value has slowed significantly in Citigroup's peers. JPMorgan's tangible book value improved by 6% since this time last year, and Bank of America's improved by a sluggish 3.3%. The better performance by Citigroup can be attributed to the very effective winding down of Citigroup's troubled "legacy" assets over the past several years, and implementing much more responsible lending standards than before the crisis.

C Tangible Book Value (Per Share) Chart

What this means is even if Citigroup continues to trade at a discount to its tangible book value, which I think is unlikely, we should still see the share price go up. After all, 87% of $60 is more than 87% of $50!

Fundamentals improving faster than peers
Valuation aside, one of the most compelling reasons to invest in Citigroup is how it's improving its fundamentals quicker than its big-bank peers.  According to the Basel III Tier 1 Common Ratio, which is considered to be indicative of a bank's financial strength, Citigroup is not only the most well-capitalized of the "big four" banks at a 10.6% ratio, but it has grown its capital faster than its peers:

I mentioned earlier how Citigroup grew its tangible book value at a rate of 8% last year. In contrast, its peers saw lower year-over-year improvement, with 5.5% TB growth for JPMorgan Chase and just 3.4% for Bank of America.

There are still hurdles, but these are good signs
Citigroup has definitely improved quite a bit since the crisis, but shares aren't cheap for no reason. The company has much more international exposure than peers, particularly in emerging markets, which was the main reason why Citi's capital plan was rejected by the government. There is simply no way to know the full effect of a global downturn on the bank's profits.

Additionally, while Citi Holdings (the legacy assets) has been reduced significantly, there are still about $114 billion in assets in the division, and this could be a big burden in another U.S. market crash. Citigroup's entire market cap is just over $142 billion, so if a significant percentage of the legacy assets went bad all of a sudden, it could mean a big hit to shareholders.

Having said all of this, Citigroup's incredibly cheap price makes it worth taking a chance on. If the past few years are any indication, the company will continue to aggressively reduce its exposure to bad assets and improve its capital levels. It's a matter of when, not if, the bank will be allowed to return more capital to its shareholders, and when this happens, the stock won't be on sale forever.

How will this affect Citigroup's profits?
There's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banks. That's bad for them, but great for investors. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. To learn about about this company, click here to access our new special free report.

There was a problem reaching the disclosure generator. Please try again.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information