Before I get started, have you ever heard the story of the Chinese Bamboo
Tree?
Here's how it goes;
If you take a little seed of the Chinese Bamboo tree, plant it, water it,
and fertilize it for a whole year, nothing happens. In the second year, you
water it and fertilize it, and still nothing happens. The same thing happens in
the third and forth years, you water it, and fertilize it, and end up becoming very
discouraged! But by the fifth year, if you had continued to water and
fertilize that little seed, sometime during the fifth year, the Chinese bamboo
tree sprouts and grows NINETY FEET IN SIX WEEKS!
This is what we think will happen with these three stocks. Sure there will
be many discouraging moments over the next 5 years, but I believe these
three big named stocks have a better than average chance of returning to
their former positions of dominance.
Some of the biggest money made in the markets happen when the price of
very influential stocks fall to ridiculously low prices. What these 3
stocks so attractive in my eyes (besides their political influence and low
stock price), is you probably couldn't find three stocks more hated and
shunned.
There is an old saying in the investment world, "when everyone is lining
up their deck chairs on the sunny side of the boat, it may be wise to go to
the other-side of the ship because the sun will eventually come around to
you."
We all are aware of the problems surrounding CitiGroup (C), Bank of
America (BAC), and General Electric (GE). This is why the stock prices are
where they are today. I believe all three will eventually work their way
through their problems. I believe all three will have much higher stock
prices in the years ahead.
CitiGroup (C)
CitiGroup (C), if it remains independent, will probably take 10 years to
get back to its days of glory. For those of you who remember the savings
and loan crisis of the 1980s and 1990s, you may also remember that
"CitiCorp" (now CitiGroup) stock crashed, and today is nothing more than a
expanded version of the past.
Here are a few reasons why I believe CitiGroup (C) will survive, or
merge;
1) CitiGroup (C) may eventually merge with with another investment bank
like Goldman Sachs.
In October 2008, when the credit crisis was in full bloom, news broke that
Treasury Secretary Hank Paulsen, tried to get Citigroup and Goldman Sachs
to merge. What happened is Goldman Sachs CEO, Lloyd Blankfein, did indeed
call Citigroup CEO, Vikram Pandit, to discuss a merger. But the pieces were
not in place yet to allow this to happen.
The Financial Times broke a story that Blankfein and Pandit were talking
to lay the groundwork for a possible merger. But, CitiGroup and Goldman
needed to make several strategic moves to clear the way before a deal could
get done.
First, Goldman had to become a bank holding company (which they did).
Secondly, Goldman has no interest in owning a retail brokerage operation.
Oddly, Citigroup sold 51% of Smith Barney to Morgan Stanley.
Third is the connection within CitiGroup to Goldman Sachs. Former
Citigroup advisor, Robert Rubin was once a chairman at Goldman Sachs, and
also a former US Treasury Secretary. If Goldman buys CitiGroup, it would
wipe out a big competitor. I find it odd that former Goldman CEO, Hank
Paulsen, who was at the time the US Treasury Secretary, provided TARP funds
to CitiGroup and not Bear Sterns and Lehman Brothers.
Since Bear Sterns and Lehman Brothers had no former Goldman alumni guiding
their ships, was Paulsen wiping out Goldman competitors, while protecting
their alumni at CitiGroup?
In addition to the above, in August 2009, the CEO's of Citibank, N.A.,
and Latin America bought 1 million shares each at $3.41, and $3.21
respectively. Other purchases have taken place as well.
In November 2009, we learned that hedge fund manager John Paulson's made a
humongous purchase of CitiGroup stock. Paulson bought 300 million shares of
Citigroup, while selling all its shares in Goldman Sachs.
CitiGroup has begun returning the TARP money it received from the US
government. I believe this says a lot. Whatever happens in the months and
years ahead, I would say the statements above warrant taking a chance in
CitiGroup stock.
Bank of America (BAC)
Bank of America (BAC) is another interesting turnaround story. Recently
the company paid back its TARP loan, but even more interesting are the
assets they own.
Recently, Sen. John McCain introduced legislation that would ban
investment banks, and commercial banks from engaging in retail brokerage
activities. As you are probably aware, BAC owns the largest retail
brokerage in the nation- Merrill Lynch.
Merrill is very powerful, and again politically connected. Former Merrill
Lynch CEO, John Thain, was at one time a co-President at Goldman Sachs.
Like I have said before, it seems that Goldman has an interest in
protecting its alumni.
Keeping the the political connection theme, the former Merrill chairman
and CEO, Donald Regan, was Secretary of the Treasury and Chief of Staff to
President Ronald Reagan.
If the legislation introduced by Sen. John McCain passes, Merrill Lynch
could eventually be spun-off to existing BAC shareholders. This would be
windfall # 1 for owners of BAC.
The second windfall is an easy one.
Prior to the financial crisis, BAC paid a $2.48 dividend. Their history of
dividend increases was also impressive. Eventually, I believe, Bank of
America will not only survive, but thrive. I am betting in the years ahead
they will begin reinstating the dividend, raise dividends, and buy back
stock. This would be windfall # 2.
Apparently, the insiders agree.
Some of the key insider purchases at current prices raises our faith in
BAC even more;
Robert W. Scully (director), bought 62,000 at $16.79 in the open market
for $1,040,910.00 on October 23, 2009.
Sallie Krawcheck (Pres. Global Wealth Mgmt) bought 63,000 at $15.97 in the
open market for $1,006,350.00 on August 13, 2009.
General Electric (GE)
General Electric is very well connect too, and has some very powerful
forces among the political and financial elites. Despite being a major blue
chip, GE does a really good job of staying out of the limelight of
controversy. In fact, until the mortgage crisis imploded, you rarely heard
anything controversial about GE.
What really perked my ears up was the global climate summit in Copenhagen,
Denmark, and GE's involvement. With so many governments present at these
high-level meetings, I realized that GE will be a major beneficiary of the
move to install new clean energy technologies.
GE's, environmental, health, and energy division's stand to profit
handsomely with its line-up of energy efficient products.
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