We recently published a list of 15 Best Stocks to Buy According to Hosking Partners. In this article, we are going to take a look at where Citigroup Inc. (NYSE:C) stands against the other best stocks to buy according to Hosking Partners.
Hosking Partners was established in 2013 by Jeremy Hosking as an independent partnership that offers a single global equity strategy. The firm appeals to investors seeking long-term returns and innovative thinking employing a capital cycle approach to investing. It has a diverse set of stocks in its portfolio that belong to a variety of industries consisting of AI, shipping, and financial services, among others. Jeremy Hosking earned an MA from the University of Cambridge, after which he served Marathon Asset Management 26 years as a founding partner and lead portfolio manager. There he contributed to developing the capital cycle approach to investment.
In its recent blog about shipping, Hosking Partners believes that understanding the cycles in different classes of shipping and global trends is essential for successful investment in the industry. Currently, Shipping (covering the container, dry bulk, product tanker and LNG sub-sectors) represents 1.25% of the portfolio. Global trade has declined as a percentage of GDP since 2010 caused by deglobalization, accelerated by the COVID-19 pandemic and geopolitical instability from the Russia-Ukraine war. This trend, coupled with the energy transition, is expected to constrain future supply and increase commodity price volatility, benefiting shipping by enabling cross-border trade.
Furthermore, shipping is a significant emitter of CO2, accounting for about 3% of global emissions. Environmental regulations aim to reduce emissions, but uncertainty over future fuel technology deters investment in new ships, leading to a tighter supply. The industry’s efficiency, measured by emissions per tonne-km, remains high compared to other transport modes. The shipping industry is at a pivotal juncture, with significant transformations driven by AI, the energy transition, and ESG considerations.
Another industry that Hosking Partners talks about is copper mining. Copper is often seen as a barometer for economic health and is crucial for the energy transition, including electric vehicles, power grids, and wind turbines. Wall Street banks are optimistic about copper prices, forecasting significant gains. Citi analysts suggest that prices could surge to over $15,000 per ton in the next 2-3 years if a strong economic recovery occurs, while their base case projects a rise to $12,000 per ton with modest demand growth through 2025 and 2026. Bank of America has also increased its 2024 copper price target to $9,321 from $8,625, citing tight mine supply and high demand driven by the energy transition as key factors.
However, some experts are cautious. Colin Hamilton of BMO Capital Markets argues that commodity markets tend to self-correct, and if supply issues persist, demand may adjust, potentially leading to lower prices. Hamilton suggests that while high price targets might be temporarily achievable, adjustments in demand could follow. The market may see a modest surplus due to increased mined supply, which is projected to grow by 4-4.5%. This is largely driven by new greenfield and brownfield projects. Despite the near-term surplus, long-term scarcity is anticipated as regulatory and political challenges in South America could impede the development of new mines.
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Citigroup Inc. (NYSE:C)
Hosking Partners’ Stake Value: $76,074,642
Percentage of Hosking Partners’ 13F Portfolio: 2.81%
Number of Hedge Fund Holders: 85
Citigroup Inc. (NYSE:C) is a global financial services company operating in over 100 countries, with two main segments: global consumer banking and the institutional clients group. The company’s restructuring efforts are progressing well, with nine out of fourteen consumer franchises sold or wound down by March. Its Mexico consumer business is on track for a planned IPO next year. Citigroup’s stock, trading at about 10.7 times its forward earnings—below the sector average of 16.5 times—offers an attractive investment opportunity.
CEO Jane Fraser announced on June 18 that the bank is shifting from its expansive 1990s model to a more focused vision. The company is scaling back operations, divesting businesses, and reducing its workforce to enhance stock performance and streamline operations. CFO Mark Mason described 2024 as an “inflection year,” with goals to boost full-year revenue by at least $6 billion by 2026 and cut expenses by at least $500 million.
In Q2 2024, Citigroup reported a net income of $3.2 billion and earnings per share of $1.52, with revenues increasing by 4%, driven by strong growth in its Services, Markets, Wealth, and US Personal Banking divisions. The company is working to normalize credit costs and expects reduced losses in the medium term, along with a decline in expenses in the second half of 2024, indicating a promising outlook.
Piper Sandler analysts recently initiated coverage of Citigroup, raising the price target from $70.00 to $73.00 and giving the stock an “Overweight” rating on July 15.
Silver Beech Capital stated the following regarding Citigroup Inc. (NYSE:C) in its first quarter 2024 investor letter:
“Since the beginning of 2023, Citigroup Inc. (NYSE:C) has been one of the Fund’s largest holdings. In our Q3 2023 investor letter, we laid out our core investment thesis for Citi: although the bank was an underperformer (weak returns on equity), Citi was (1) less risky than it had ever been and (2) cheaper than it had ever been. The Fund’s investment thesis for Citi featured in a November 2023 Euromoney article Citi 2.0: If she builds it, will they come?The market narrative has started to converge on our investment thesis. During the first quarter, Citi was the best-performing bank stock in the S&P 500 index. However, improvements in Citi’s operating performance have come more slowly than its share price gains. Due to this converging market perception with our own thesis, the Fund exited its position in Citi. The Fund’s stake in Citi generated a 34% gross IRR over our 14-month investment period.”
Overall C ranks 6th on our list of the best stocks to buy according to Hosking Partners. While we acknowledge the potential of C as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than C but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.