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    2 replies to "Citigroup — free report for Ask Matt, Dangerous Rating"

    • Herb
      September 3, 2010

      I don’t think you consider the vast franchise reach of this financial institution, which is second to none in terms of number of branches and country presence worldwide. There isn’t another bank which comes even close. I believe the 15% NOPAT addressed in your analysis will be surpassed once the financial crisis is behind us. This may take a couple of years but we will see it.

    • David Trainer
      September 7, 2010

      Herb:
      Thank you for your comment.
      My point about the valuation of the stock is that 15% CAGR in NOPAT for 20 years is the current level of expectations in the stock price. For investors to make money in Citi shares, the company will have to produce substantially more profits that what already embedded in the stock. Even if the franchise value is as good as you suggest, the stock market seems to have already taken that into account and priced the stock accordingly. Given the RED FLAGS (including the already-high expectations), the stock has more downside risk than upside potential. I prefer to buy stocks with low expectations and sell them when expectations get high, like the expectations in Citi’s price.

      See this blog post for more info on the “Buy low expectations and sell high expectations” investment strategy.

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