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Irving Kahn boosts his position in Citigroup

November 12, 2009 | About:
Mike Covello

Mike Covello

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Irving Kahn has boosted his position in C to 2.3 million shares. C is also owned by gurus Kenneth Fisher and Richard Snow.

Much research is written daily about C. If you want to see the details of C's various businesses the information is available in abundance. My article is more a discussion of the company's valuation and why legendary investor Irving Kahn is increasing his position.

Kahn is 104 years old and has 77 years of investing experience. He served as second teaching assistant to Benjamin Graham at the Columbia School of Business which served as his indoctrination into the value investing world. Kahn was quoted in a 2002 magazine article as saying "I'm at the stage of life where I get a lot of pleasure out of finding a cheap stock." C is such a stock.

The banking industry in general, and C in particular, has undergone a gut-wrenching period of loan quality deterioration and asset write-downs. C has been one of the hardest hit requiring a government bailout which has resulted in the government owning 30% of C's stock. If you believe as Irving Kahn and Kenneth Fisher do, that the worst is over for the economy in general and therefore the banking sector in particular, C is priced for a significant rise in the next couple of years

The financial sector has paused of late after rallying strongly in the beginning of the year. The XLF etf which is the Financial Select Sector SPDR rose from a low of $5.88 on 3/16/09 to $13.82 in early May. It has traded mostly sideways since. C which peaked in 2007 in the low 50's traded at $5.43 on 8/28/09 and was trading recently at $4.16.

While C is expected to post its second consecutive annual loss in 2009, it should return to profitiability in 2010. (Value Line expects earnings per share of $.35 in 2010.) What is attractive here is C's price to book ratio. C's projected year end book value is $12.35 per share resulting in a price to book value ratio of just .34.

Book value as a barometer of a stock's value has gotten many investors in trouble of the last couple of years, especially in the financial sector. Examples include Washington Mutual, AIG, Ambac Financial, Indymac, PMI, CIT, and many many others, and well as C itself, whose book value was over $24 in 2006. However, if you ascribe to the belief that the worst of the mortgage crisis is behind us, and that the economy is starting to improve, C provides tremendous upside potential for the value investor. C has traded historically an a price to book of better than 2. A return to just book value, would provide an almost 200% return, making C a tremendous value.

Rating: 3.3/5 (15 votes)

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