Please ensure Javascript is enabled for purposes of website accessibility

2-Star Stocks Poised to Plunge: Citigroup?

By Brian D. Pacampara, CFA - Updated Apr 5, 2017 at 8:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Market-lagging returns could be written in this two-star stock.

Based on the aggregated intelligence of 120,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, banking behemoth Citigroup (NYSE:C) has received a distressing two-star ranking. While one-star stocks have been the worst performers, our data has shown that two-star stocks still lag the market by a significant margin and should be approached with caution; conversely, highly-rated stocks have outperformed the S&P.

With that in mind, let's take a closer look at Citigroup's business, and see what CAPS investors are saying about the stock right now.

Citigroup facts

Headquarters (founded)

New York, N.Y. (1812)

Market Cap

$40.65 billion

Industry

Financial services

TTM Revenue

$27.41 billion

Management

CEO Vikram Pandit
CFO Gary Crittenden

Return on Equity (Average, Past Five Years and TTM)

10.3% and (16.1%)

Competitors

Bank of America (NYSE:BAC)
JPMorgan Chase (NYSE:JPM)

CAPS members bearish on C also bearish on

Merrill Lynch (NYSE:MER)
Wachovia (NYSE:WB)

CAPS members bullish on C also bullish on

General Electric (NYSE:GE)
Johnson & Johnson (NYSE:JNJ)

Sources: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS. TTM = trailing 12 months.

Over on CAPS, fully 543 of the 1,337 All-Star members who have rated Citigroup -- some 41% -- believe the stock will underperform the S&P 500 going forward. These bears include BSHumphreyII and rd80, both of whom are ranked in the top 20% of our community.

Last week, BSHumphreyII brought the obvious red flag to our community's attention: "Having to come back to the government trough for seconds is not a good sign. Think they'll get a third bite at the apple?"

In a pitch from two weeks ago, rd80 took an in-depth look at the Citi bailout, and reached the same bearish conclusion. Below is a small excerpt, but be sure to check out the entire pitch:

From a taxpayer perspective, the deal isn’t bad, but isn’t as good as it could have been. If Citi survives, the 8% coupon on the preferred is a pretty good return and the warrants give some upside if the stock price gets up into double digits. I think the 80% dilution in previous bailouts was excessive, but I would have liked to see a much lower strike price for our warrants in this deal. ...

This plan takes a zero stock price off the table, but about the best that can be said for it from a shareholder perspective is it’s better than the alternative. The 8% payout on the preferred is a substantial expense for a company that isn’t making money.

What do you think about Citigroup, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. More than 120,000 investors are waiting to hear what you have to say. CAPS is 100% free, so simply click here to get started.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. JPMorgan Chase, Bank of America and Johnson & Johnson are Motley Fool Income Investor picks. The Fool's disclosure policy always gets a perfect score.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Citigroup Inc. Stock Quote
Citigroup Inc.
C
$54.00 (1.52%) $0.81
Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$35.91 (2.40%) $0.84
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
JPM
$120.14 (1.48%) $1.75
General Electric Company Stock Quote
General Electric Company
GE
$78.90 (2.28%) $1.76
Johnson & Johnson Stock Quote
Johnson & Johnson
JNJ
$167.14 (-2.07%) $-3.53

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
390%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.