How do you know when a business is poorly run? When the U.S. government pumps $20 billion in it just to keep it going.
That, in a nutshell, explains why legions of investors will never, ever invest in Citigroup (NYSE: C).
That's a shame, because Citigroup these days is a far better bank than before, taking on fewer risks and pursuing more sound growth strategies. For investors willing to move beyond the whole banking bailout mess (in which Uncle Sam still profited anyway), then they need to give the sector -- and Citigroup in particular -- a fresh look.
I've been watching Citigroup for almost two years. And though the banking giant is far from a picture of health, it is on a much better trajectory. The bank just reported another challenging quarter, yet it also appears that the stage is set for a slow and steady rebound in quarterly results. A year or two from now, investors may be stunned to see a company that is boosting profits at a sharp pace.
I'm adding Citigroup to my $100,000 Real-Money Portfolio now, because I want to profit from the coming change of sentiment -- before it happens.
The cart before the horse
Citigroup's CEO, Vikram Pandit, laid out a fairly impressive turnaround strategy nearly two years ago: Unload underperforming divisions and assets and redirect funds to the most promising opportunities. Broadly speaking, he wanted to de-emphasize the mega-bank's exposure to the troubled U.S. consumer while boosting Citigroup's presence in the most dynamic regions, such as Asia and Latin America.
That's a wise-long term plan, but Pandit put the proverbial cart before the horse, neglecting to put Citigroup in lean shape before pressing ahead. Planned asset sales are taking longer to materialize, and the bank is has had a still-bloated cost structure in the United States. Meanwhile, costs also rose quickly in foreign regions in a bid to quickly establish a major presence. So during the past year, shares have muddled along in the face of too-high expenses and weak quarterly reports.
Here's the good news: Citigroup is tackling its cost-structure more aggressively. The better news: Citigroup's revenue streams have found a floor, and slowly rebounding revenue should pair up well with falling expenses. The best news: Struggling European banks are so fixated on the troubles in their home markets that they'll represent minimal competition for Citigroup as its pushes further into international markets.
With all of those items taken together, Citigroup has the makings of a surge in earnings that few are talking about right now.
Let's take a closer look...
On the matter of expenses, Pandit had expected U.S.