NEW YORK (
shares are primed to rise after receiving several votes of confidence this week, but the stock is likely to stick close to its current level of $4, at least in the near term.
The combination of the U.S. Treasury completing the sale of 20% of its giant stake in
, netting $6.2 billion in proceeds, along with one big hedge fund investor saying he took a large position in the bank and an upgrade by one Wall Street analyst to a buy rating -- the second in less than a week -- seems to position Citigroup shares to drive higher over the near term, particularly given the stock's recent pullback along with the broad sector. But at least one market participant says that while Citigroup's stock is attractive, the increase will be limited for now.
"I don't think it is a market where you're going to see stocks soar for awhile," says Tim Ghriskey, chief investment officer of Solaris Asset Management. "We're not all of sudden back into a bull market yet. The volatility has created a degree of caution that will probably keep investors from aggressively increasing risk profiles." Solaris owns shares of Citigroup.
"What's been weighing on Citi and the other financials has really been macro issues of a global revaluation of financial companies," Ghriskey says. "Their exposure to Europe is fairly limited, but there is certainly some exposure, and that creates some uncertainty, which to us is really a short-term issue."
After a run-up this year, where the stock even hit the critical $5 mark, Citigroup shares, as of Wednesday's closing, are down 20% since April 23, the last day of trading before the Treasury announced it would beginning selling its stake in the bank.
Appeal of Citigroup's stock is increasing now that the company has removed any immediate danger (as in possibly failing) and is looking to get back in the game against other large rivals
Bank of America
told attendees at a charity benefit late Wednesday that his firm, Pershing Square Capital Management, recently bought 150 million shares of Citigroup. (Ackman didn't elaborate on the purchase.)
Other major hedge funds and other big institutional funds have been buying in or bulking up positions in Citigroup as well, including
, Harbinger Capital Partners and Traxis, as well as funds like Vanguard and
Fairholme Fund, according to data provided by the
Nasdaq Stock Market
. That's quite a difference from the giant
in Citigroup by hedge funds and other investors earlier this year.
To be sure, the Treasury's intention to gradually exit its stake in Citigroup adds pressure on the stock over the near term as more shares flood the market.
More on Citi Buy Citigroup at $4
Still, Ghriskey says Citigroup's cheap valuation and the belief that the troubles in Europe are a short-term issue makes the stock attractive. While Solaris has cut back on certain positions it owns because of the volatility in the markets of late, its investment in Citigroup has remained steady. And while the impending financial reform could be detrimental, Ghriskey seems more optimistic of banks finding sources of revenue to make up for lost business.
"Our feeling is
Citigroup is more undervalued than some of the other names and there is ongoing improvement and the potential for positive announcements about fundamental improvement coming out of the company," he says.
Ghriskey's comments support the opinion of Oppenheimer analyst Chris Kotowski, who, following in the shoes of
earlier in the week, upgraded the stock to a buy-equivalent on Wednesday.
Kotowski says Citigroup is attractively priced, given the recent pullback in stocks, and that the big bank is "leveraged to the health of the U.S. consumer," which is improving, according to a research note to clients.
"We envision a roughly $18 million swing to the better in annual credit losses between the
first quarter level and our estimated 'normalized' level in 2012. That in and of itself generates over 40 cents per share of EPS improvements. In our view, that is the primary reason for buying the stock now," Kotowski wrote. "However, assuming the recovery progresses, which we think is likely, at some point in the future, investor focus should shift from recovery to growth, and Citi has some interesting businesses in that regard."
Citigroup said in a statement emailed to
late Wednesday that the bank is "pleased that Treasury is making significant progress in profitably selling its common shares."
The transaction adds "to the substantial return for taxpayers realized last year when we repaid the December 2008 TARP investment," Citigroup said.
Citigroup shares were most recently climbing 15 cents, or 3.8%, to $4.01. Roughly 440 million shares had changed hands by early afternoon.
--Written by Laurie Kulikowski in New York.