Investors can profit if they catch a momentum stock early on but they have to be quick on their feet to exit or get steamrolled over. Tesla (TSLA) and Twitter (TWTR) are significant recent examples of such momentum stocks.
For long-term investors, a better method is to sit back, relax and wait for others to panic. Once a sufficient amount of blood is flowing, step up and calmly buy while others are pounding the sell button faster than Thumper after a second Grande at Starbucks (SBUX).
This year has been rough for Citigroup investors and shares are just above this year's lows. At near $47, the stock is down nearly 11% for the year to date.
The bank has several balls to juggle. The FBI and the Securities and Exchange Commission are investigating Banamex, the Mexican division. The Federal Reserve rejected Citigroup's proposed dividend increase, and everyone is stressed over the failing stress test.
The bank's earnings are becoming increasingly cheap compared to its competitors. With a forward price-to-earnings ratio of 9.64, it's on sale compared to its peers. U.S. Bancorp (USB) and Wells Fargo (WFC), two banks I use and am highly bullish on, have price multiples over 35% higher than Citigroup. JPMorgan Chase (JPM) comes close, but Citigroup is the better value. The dangerous part of buying a falling knife for value comes from entering too early.