What is going on with Citigroup?
Posted by Ray on March 11, 2010 under Main | 
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Over the past few days Citi (C) has been trading like the internet stocks in 1999 as it climbed from about $3.30 to a close of $4.18 today, not a bad week. The company has poor fundamentals and is not what I would call a “sound” investment it is, in my opinion, a gamble to own the company. Here is the kicker, I am a share holder of Citi, I own the common with a cost basis of $3.32 and I own January 2011 4 calls with a cost average of $.37. My common stock is up 25% and my options doubled.
Don’t get me wrong, I like making money, but even I know something is just not right with this kind of move for a company that has 28.5B shares outstanding and a market cap of just under $120B with horrible earnings. I bought the stock because I figured it was worth about $4.50 if they sell all the assets they claimed and maybe $5 if the hedge funds decided to pick it up for alpha. The problem is the company has not sold the assets yet and the rise in share price is based on rumor of some sales, a rumor the SEC is banning short selling on government owned companies (which is false), Bove and other analysts saying it is undervalued or turned the corner, Pandit claiming the bank is on its way to profitability, the $2B in TRuPs priced @ 8.5% and, the latest, is the firm could earn $20B by 2012. That was a mouthful.
However, very little of that, which is not already debunked, can be verified and much is speculation. I would say it was one mother of a short squeeze and that made momentum player, read high frequency traders, to pick it up and run with it. In short, no pun intended, I do not believe it is sustainable, but I have not sold yet, I am crazy what can I say. I think the momentum and irrational behavior of the markets along with the belief that the common shares will not be diluted, which the CFO said dilution of common shares will likely happen, will carry the stock higher in the near-term. Well, let’s say if I am wrong I will happily take 20% and 80% profit, respectively, on my positions. In other words, I will not cry if it goes down tomorrow.
What I would not do is buy it way up here until there is some confirmation of asset sales or profitability. Even if they report a profit we will not know if it is real because of the marked-to-fantasyland rules in place. In other words, I would not add speculative money to this stock to save my life right now, it is not worth it. If you own it already do whatever you are comfortable with, but do not buy more. Greed is a terrible disease that leads you to make bad decisions so be happy with whatever gains you have and look for other opportunities.
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