Citibank: From Outhouse to Penthouse

Updating Citibank after Q2 Earnings: A low valuation play with beaten down expectations and upside potential.

Citibank's been the dark horse winner this year, and it's not even close. They've outrun every other big bank, racking up a 20% plus return year-to-date.

But to understand why this is so impressive you have to rewind to September 2023. Citi was in the toilet, trading in the high 30s. Everyone thought it was dead money. It was mocked, beaten, and left for dead in the rubble pile. And that's when my radar went off.

Here's what I saw:

1. The numbers were an absolute trainwreck. Earnings? Pathetic. Efficiency? A joke.

2. They brought in Jane Fraser in 2021. First woman to run a big bank like that. Now, when you're sitting on a steaming pile that big, you either start shoveling or you're out. I figured she'd have to make some serious moves, or else be canned looking for another job.

3. Citibank was a global clusterf*ck. Operations, infrastructure, business lines - you name it, it was a mess. Be everything to everyone and do little of it well. Investment bank? Sure. Consumer bank? Sure. Bank shady geographies? Sure, we’ll do that too. But here's the thing: sometimes a mess means opportunity if you've got the gall to clean it up.

4. The Street hated it. I mean, they wouldn't touch it with a ten-foot pole. And that, my friends, is often when you want to be buying.

I'm not in the business of falling in love with stocks. I'm in the business of making money. And sometimes, that means zigging when everyone else is zagging.

Citibank wasn't a sure thing. It was a calculated bet. But in this game, that's all you've got. You do your homework, you trust your gut, and you pull the trigger.

Remember, the big money isn't in the buying and selling. It's in the seeing something few other people do, building a position, and waiting for the thesis to play out. That’s precisely what happened with Citibank for me.

My sentiment check was here in the fall of 2023, and these were just a few replies from people I respect very much in the bank space:

And these were the nicer comments.

When I saw how everyone and their mother hated Citibank, it hit me like a ton of bricks. My thesis wasn't just smoke and mirrors - it was solid. And here's the kicker: in a market where everyone's expecting dog turds, even a small improvement looks like gold.

So, I pulled the trigger. Building a position around $40. Didn't stop there either. Kept adding as it climbed - mid-40s, low 50s. Winners average winners I’m told.

Then Citibank drops this "Project Bora Bora" bombshell. Cost-cutting initiative. Suddenly, all these Wall Street geniuses start waking up. Wait a minute, they’re going to cut costs? That’s bullish. Mike Mayo catches wind of it in between deadlift sets and does a much better job than I ever could of connecting the dots; not only was this turnaround possible, it would also be very profitable.

From there? It's been a rocket ship. 51% rally. Smoking the QQQ, the SPY, and KRE. Not too shabby for a stock everyone left for dead.

Remember this: The market's usually wrong. When everyone's running for the exits, that's when you need to start looking for the entrance. That's how you make the big money, at least in the bank space (so long as you don’t buy the next SIVB).