We recently compiled a list of the 7 dirt cheap stocks to invest in now. In this article, we are going to take a look at where Citigroup Inc. (NYSE:C) stands against the other the Dirt cheap stocks to invest in now.
The stock market is at a turning point after one of the longest bull runs in recent history. With major market indices close to all-time highs, valuations are getting out of hand. Likewise, the earnings season has seen increased volatility, though, with some significant selling of semiconductor and artificial intelligence stocks that used to draw investors.
Soaring geopolitical tensions in the Middle East are complicating the situation and triggering risk aversions in the market. Investors are becoming increasingly cautious and resorting to safe-haven assets due to concerns about a full-blown war in the Middle East that could seriously impact the global economy.
READ ALSO: 10 Stocks That Will Make You Rich in 5-10 Years and Bill Ackman Stock Portfolio: 8 Top Stock Picks.
Growing geopolitical tensions have been a factor in the stock market’s erratic start to October. According to Barbara Doran, founder of BD8 Capital Partners, things getting out of hand in the Middle East could cause stocks to decline.
Surveys of public opinion already indicate that jitters are rising in the market. A gauge of consumer confidence saw its most significant one-month drop in over three years last week. Furthermore, the National Federation of Independent Business reports that a recent survey of confidence among small-business owners dropped more than anticipated in early September, maintaining the gauge below its 50-year average for 32 straight months.
“We’re in a Goldilocks moment for the U.S. economy,” said Rich Nuzum, chief investment strategist at Mercer. “But Goldilocks moments are rare, and they tend not to last long. So when does something go bump in the night?”
Bargain Hunting in an Overvalued Market
While the market is priced at a premium due to the artificial intelligence frenzy, it does not mean there are no bargains. There are dozens of dirt cheap stocks to invest in now that are trading at discounted valuations depicted by low price-to-earnings multiple and solid underlying fundamentals.
Interest rate reduction was expected to benefit small-cap stocks. That isn’t happening. The Federal Reserve’s dramatic interest rate cut two weeks ago has caused the small-cap-focused Russell 2000 index to fall by 0.5%, lagging behind the S&P 500’s 1.3% gain.
According to Bank of America, investors should be aware of a few important US stocks while navigating the current market climate. In a note to clients, strategist Nigel Tupper stated that a combination of improving global earnings cycle, easier monetary policy in the US as inflation returns to the target level, and China’s recent multifaceted stimulus appears supportive of equity markets and cyclicals.
It is important to note that not all investments will yield significant returns, considering valuations have gotten out of hand with the S&P 500 at an all-time high. Nevertheless, long-term investors can make substantial gains by selecting solid growth stocks trading at discounted valuations. An undervalued company backed by excellent financial fundamentals, such as robust revenue and earnings growth, will always elicit strong interest from professional investors. Therefore, it is likely to enjoy significant share price appreciations down the line.
The Organization for Economic Cooperation and Development predicts that declining interest rates and rising real wages will contribute to a modest increase in global economic growth this year and next year, which is one of the reasons to be bullish about dirt-cheap stocks.
Our Methodology
To compile the list of dirt cheap stocks to invest in now, we sifted through screeners and reports, scanning for high-quality stocks trading at discounted valuations. From an initial list of 20 stocks, we settled on the top seven stocks that were trading under a forward P/E of 10, as of October 7, and were the most widely held by hedge funds. The stocks are ranked in ascending order based on the number of hedge funds that hold them, as of Q2 2024.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Citigroup Inc. (NYSE:C)
Forward Price-to-Earnings Ratio: 8.77
Number of Hedge Fund holders as of Q2: 85
Citigroup Inc. (NYSE:C) is one of the bank stocks trading at a discount while undergoing a restructuring that promises to position the company to generate significant long-term value. Despite its size and scope, Citigroup has yet to keep up with its bigger competitors, with $1.7 trillion in assets.
Its massive global business has turned out to be a big headwind, making it difficult to generate significant value. Nevertheless, the bank has embarked on a restructuring drive that has sold 9 of 14 consumer franchises.
The bank reduced managerial layers from 13 to eight, eliminated 60 committees, and plans to shed thousands of positions as it aims to trim its operational expenditure. The bank also plans to take its Mexico consumer business public as part of its push to generate shareholder value.
Citigroup Inc. (NYSE:C) can move closer to its return on equity goals, which Chief Executive Officer Jane Fraser thinks should be between 11% and 12%. The stock would definitely see a significant rerating if that occurred. If the stock performed similarly to its peers, such as Bank of America and Wells Fargo, it would almost double in value.
Amid the restructuring drive, it delivered solid second-quarter results that beat estimates. Net income was up 10% year over year to $3.22 billion as revenue rose 4% to $20.14, affirming why it is one of the best dirt cheap stocks to invest in now on strong underlying fundamentals.
As the restructuring drive takes shape, Citigroup Inc. (NYSE:C) trades at a significant discount of 45% of its book value. It trades at a price-to-earnings of 8.77 compared to the S&P 500 average of 27.45.
In Q2 2024, 85 hedge funds held positions in the stock, with total stakes reaching $10.64 billion. As of June 30, Berkshire Hathaway was the largest shareholder with a position worth $3.51 billion.
Patient Capital Management stated the following regarding Citigroup Inc. (NYSE:C) in its first quarter 2024 investor letter:
“Citigroup Inc. (NYSE:C) gained 24.1% in the quarter continuing its uptrend from 4Q. The company is on a multi-year journey to reorganize the business and reach a return on tangible common equity of 11-12% by 2026 (and higher further out). Citigroup is finally taking the hard actions necessary, cutting unprofitable departments, taking out middle management layers, and reducing overall headcount. As of early March, the company was 70% done with its business exits and had reduced management layers by 1/4th. We have high confidence Citi will hit its targets. In the meantime, the company is returning cash to shareholders, which could meaningfully increase if the Basel III capital proposal is changed.”
Overall C ranks 1st on our list of 7 dirt cheap stocks to invest in now. 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, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.