The Investment U e-Letter: Issue # 622
Friday, December 22, 2006 Citigroup Investment: The Most Important Stock On the Planet
by Dr. Mark Skousen, Investment U Chairman
There’s an old tradition on Wall Street where investors single out a company as the "bellwether" of the stock market.
For decades, it was International Business Machines (NYSE: IBM). Big Blue was so big, and its computers so ubiquitous around the globe, that floor traders on the New York Stock Exchange would often say, "As goes Big Blue, so goes the markets. In the 1990s, IBM sagged and was replaced by Microsoft (Nasdaq: MSFT), representing the "new economy." After all, is there a remote part of the world that Windows does not operate? So what is the bellwether stock of 2007 and the new millennium? Well, an investment in Citigroup, as one analyst calls it, is akin to investing in the "most important stock on the planet." Here's what I mean... The World’s Most Dominant Bank Citibank, part of mega-conglomerate Citigroup (NYSE: C), is the world’s largest bank, with over 200 million customers and branches in over 100 countries. According to the latest survey, here’s how Citibank ranks among the top 10 commercial banks in the world: Company | Ticker | Assets | | | | | Citibank (Citigroup) | NYSE: C | $79 Billion | | HSBC | NYSE: HBC | $75 Billion | | Bank of America | NYSE: BAC | $73 Billion | | JP Morgan Chase | NYSE: JPM | $72 Billion | | Mitsubishi UFJ Financial Group | NYSE: MTU | $64 Billion | | Credit Agricole Group | OTC: CRARF.PK | $60 Billion | | Royal Bank of Scotland | NYSE: RBS-PP | $48 Billion | | Sumitomo Mitsui Financial | OTC: MTSQY.PK | $40 Billion | | Mizuho Financial Group | NYSE: MFG | $39 Billion | | Santander Central Hispano | NYSE: STD | $38 Billion |
During the 1980s and 1990s, Japanese banks dominated the world. But Citibank has returned to its glory…
With $2 million in capital, City Bank of New York opened its doors in 1812 – and paid its first dividend the same year. By 1894, Citibank became the largest U.S. bank. In 1897, it established its first foreign branch (today Citibank is located in 100 countries). In 1904, it introduced traveler’s checks. And it became the first member of the Federal Reserve in 1913 (conspiracy theorists, take note). In 1919, Citibank became the first U.S. bank with $1 billion in assets. By 1939, it was the largest international bank. It was the first to offer compound interest on savings accounts and the first to offer unsecured personal loans. It invented the negotiable certificate of deposit (CD) and EuroDollars, introduced MasterCard in 1969, and, in 1977, offered 24-hour ATMs. It is now the largest credit-card issuer in the world, and has the largest number of credit cards in Asia. In 1979, it became the world’s leading foreign-exchange dealer. In 1994, it opened the first fully foreign-owned commercial bank in Russia, China, Vietnam and South Africa. In sum, Citibank is the most dominant banking institution in the history of the world. What about the Citigroup, the stock? An Investment in Citigroup... Showing a Bullish Trend Of Late In addition to Citibank, Citigroup owns the following: - Salomon Brothers
- Smith Barney
- Traveller’s
- Primerica, and other financial services.
And business is good… Profit margins at Citigroup are an outstanding 29%, and the bank has had a policy of paying a rising dividend for years, with a current quarterly dividend of 49 cents, or a 3.5% yield, one of the highest among Dow stocks. Citigroup stock is up 12% for the year, but continues to languish behind other financial institutions, such as Goldman Sachs, which has doubled in the past year. See the chart below on how Citigroup is shaping up as an investment: 
Despite being downgraded by several Wall Street analysts lately, Citigroup appears poised to move higher. According to the technicals, Citigroup is in a clear investment uptrend, which is bullish for the stock market as a whole in 2007, if the company is indeed a bellwether stock. I believe that to be true for Citigroup as an alternative investment. Good investing, Mark Today's Investment U Cribsheet - Citigroup’s books are flush with cash, to the tune of $670 billion. That’s 51 times more cash than General Electric has. It may be tough to grow when your market cap is $270 billion (quarterly revenue growth is a modest 2.7%), but Citigroup has raked in $21 billion of profit over the last 12 months. And the stock’s forward P/E is a mere 12. An investment in Citigroup yields a 3.5% dividend, which doesn’t hurt, either.
- How have the last two bellwether stocks performed of late? IBM is trading 37 cents below its close on December 20, 2004. Microsoft is up 10% over the same period.
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