Citigroup's Stock Investing and the Price of Success for Stock Lovers

The Dow Jones Industrial Average fell more than 400 points in two days last week, sending the popular index down more than 900 points in a five-day trading week. And volatility has continued to be felt this week, with the stock surging early on Monday only to close in the red again by the end of the day.

This isn't surprising, but it's another reminder that short-term setbacks are always part of the stock investing equation.

Of course, a simple price chart (ignoring the impact of dividends and their reinvestment) shows that the long-term trend of the Dow is significantly higher.

If you look at the S&P 500 all the way back to 1928, there were an average of three declines of 5% or more per year with no comparable gains, but an average correction of 10% occurred every 11 months, and bears It was 20%. The market on average he is held every 3.4 years.

To be sure, unrest in the Middle East wasn't the only thing worrying traders last week, as consumer-level inflation in March came in better than expected. In fact, the overall Consumer Price Index (CPI) rose 3.5% (estimated 3.4%) year-on-year, while the core CPI (excluding volatile food and energy prices) rose 3.8% (estimated 3.7%).

Clearly, many traders are betting on the Fed cutting interest rates and lowering bond yields. So the erratic act of selling stocks, whether inflation is rising or falling, or whether inflation is high or low, despite rewarding stocks' historical performance in the long run. A reaction has taken place.

This is especially true for value stocks. As shown in the table below, this style has historically performed admirably both during rising (and falling) CPI and after rising (or falling) CPI. I also find it very interesting that value stocks performed better after CPI values ​​were above the median inflation rate of 2.7% than below.

Stocks of the Week – Citigroup

citygroup
C
announced its first-quarter results last week, with adjusted earnings per share of $1.74, easily beating the Street's target of $1.23. The stock price soared pre-market on the announcement, but ended the day in the red and has since fallen further. Although the EPS numbers were down 6% year over year, excluding divestiture-related impacts such as the gain on the sale of the Indian consumer business, sales actually increased by more than 3%. did. This led to growth in US Personal Banking, but sales were offset by declines in Markets and Wealth.

Restructuring costs to simplify the organization's structure total approximately $1 billion, primarily due to approximately 7,000 headcount reductions, which are expected to result in annual run rate savings of approximately $1.5 billion over the medium term. In addition, the company incurred approximately $260 million in relocation costs primarily to improve efficiency across the organization. Looking forward, management has incorporated a more normalized level of reallocation into its guidance, with downward trending quarterly expenses in the range of $53.5 billion to $53.8 billion, excluding FDIC special assessments. That's what I'm aiming for.

CEO Jane Fraser said: “We said 2024 was going to be a pivotal year for our company. We have largely put business and organizational simplification on the back burner and focused on two key priorities: business and company transformation and performance. The organizational simplification announced in September ended last month. The result is a cleaner, simpler management structure that perfectly aligns with and facilitates our strategy. We are now more customer-centric. We are already seeing faster decision-making and more agile organizations at work. We have clear lines of responsibility starting with our executive team, fewer hierarchies, more spans of control, and frankly a lot less bureaucracy and unnecessary complexity. All of this will help the company run more efficiently, improve the client experience, and increase our agility and ability to execute. ”

Despite returning $1.5 billion of capital to common stockholders, including $500 million from share repurchases, the CET1 ratio increased to a provisional value of 13.5% and tangible book value per share increased to $86.67 , Citi's balance sheet remains strong.

Given the nearly 50% return since Halloween, I like that the market seems to be starting to appreciate Citi's progress in simplifying and turning around the banking giant. Citigroup continues on a path of transformation, and while the journey has not been rapid, after several years of focus on operational transformation and divestitures, management has begun to look at reducing and controlling expenses. This is a good thing. My feeling. Fraser's new, flatter City structure will eliminate management, which executives believe will speed up decision-making, increase accountability and strengthen customer focus.

Despite the rally in recent months, the company's stock trades at 9.5 times NTM earnings, less than 70% tangible book value, and yields a solid 3.6%, so I see significant upside potential over the long term. I feel that there is.

This is an abridged version of the full article posted on theprudentspeculator.com on April 15, 2024. wise speculator weekly commentary A valuable resource for the latest stock market news, investment tips and economic trends, hand-picked each week. Sign up here to receive regular reports like this and free stock picks: Free Stock Picks – The Smart Speculator.