Here's How Herd Mentality Is Keeping Citigroup Afloat Today
Citigroup was one of the biggest losers during the past two days of the market's pullback -- at least when it comes to banks. But this morning, after opening 0.4% lower than yesterday's close, the bank's share price shot up into positive territory. It currently sits at a very modest 0.04% gain just before 10:30 a.m. EDT. Following the crowd is certainly helping Citigroup this morning, as the distraction leads investors away from some negative headlines.
Back in court
Much like Bank of America, Citi is revisiting old business that it thought was resolved. Back in court to fight allegations from a private equity firm, Terra Firma, Citi is facing an $8.3 billion price tag if it loses this second round. Similar in size to B of A's costs if it wins the second round of its settlement fight with investors, Citi's loss would be a big hit to the bank's recovery, not to mention its bottom line.
Analysts at Zacks recently downgraded Citigroup from Outperform to Neutral. Though the bank has a number of cost-savings initiatives, the analysts believe the 1% growth of operating costs over the past year are enough to hold the bank back from outperforming the market. Pressures from legal issues (see above) and low interest rates are other factors that the analysts considered when downgrading the bank.
Some good news
It's not all bad news for the bank. As we saw recently, the Asian markets are a big factor in Citi's revenue generation. And though this lead to some rough patches in the past week with news of weakening Japanese and Chinese markets, some new progress in the region will offset those markets. With stabilizing interest rates in the Indian market, Citigroup is forecasting 10% revenue growth for the region. The bank has been working to expand its presence in India, though some licensing issues have held up branch expansion. But the ability of a stronger Indian market to offset weaker regions of Citi's Asian operations is a positive development for the bank.
Following the crowd can help and hurt a stock's chances of ending the day in positive territory. And following the crowd as an investor can seriously hurt your chances of making money in the market. With today's stock price moves, Citi may be keeping its head above water, but investors aren't looking at the true picture of the business. Keep the Foolish investing mentality: a long-term approach that focuses on the fundamentals of the business. You may not experience the epic highs on a given day, but you could also avoid the stress-inducing lows of the next.
Citigroup's stock looks tantalizingly cheap. Yet the bank's balance sheet is still in need of more repair, and CEO Michael Corbat still needs to prove himself. Should investors be treading carefully, or jumping on an opportunity to buy? To help figure out whether Citigroup deserves a spot in your portfolio, I invite you to read our premium research report on the bank today. We'll fill you in on both reasons to buy and reasons to sell Citigroup, and what areas Citigroup investors need to watch going forward. Click here now for instant access to our best expert's take on Citigroup.
The article Here's How Herd Mentality Is Keeping Citigroup Afloat Today originally appeared on Fool.com.Fool contributor Jessica Alling has no position in any stocks mentioned -- you can contact her here. The Motley Fool owns shares of Bank of America and Citigroup. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.