Lesson 7

Here is what i learnt from Ah Yap recent write ups. Good one!

Lesson #7. Sometimes, people sell because of fear and because they have no choice (the mutual fund manager and the poor margin player), you got to take advantage of that!

I ever ask myself if the recent votality will make me ton of money?Apparently, the opportunity has not been appealing.

Stock is not at a dirt cheap valuation. I guess it wont be so fast and rarely to have a chance to apply lesson 7. Nothing much can do , have to wait for another month or 2.


Ya. .. another things, i had asking opinion and do some read up on Citi. I guess this round i wont be investing in Citi. This is the intersting mathematics for Citi. I think if given a choice , between Wells Fargo and Citi, i would prefer a prime lending bank rather than a subprime lending bank.

C
Some EPS assumptions and price targets:
Assumptions #1. Earnings of $20.4 Billion. Share price $7.00 In the go-go days of 2006, Citi had its best yearly earnings from continuing operations of $20.4 billion. If the company ever made $20.4 billion again then this would equal EPS of $0.70 per share. Take a 10x multiple on this and you get a stock worth $7.00 per share.

Assumption #2: Earnings of $10.2 billion. Share price $3.50 Since Citigroup is half the company it was in 2006, lets give the company half of the earnings from that year or $10.2 billion in earnings. If the company ever made $10.2 billion then this would equal EPS of $0.35 per share. Take a 10x multiple of this and you get a stock worth $3.50 per share.

Assumption #3: Earnings of $2.4 billion. Share price $0.80. Earnings from continuing operations last quarter were $593 million. The quarter had a lot of moving parts, but maybe less than some others. Let assume the company is able to continue this trend and drops down this number to the bottom line. Lets extrapolate this out to the year, which would give the company $2.4 billion in earnings. If the company ever made $2.4 billion then this would equal EPS of $0.08 per share. Take a 10x multiple of this and you get a stock worth $0.80 per share.So if you look at the above assumptions, bears would argue with Bove that the stock is overvalued. Bulls would argue with Cramer that the stock is fairly valued or undervalued.

What do you think Citigroup's earnings power is? Be realistic. Remember there are 29.2 billion shares outstanding. So if you say "I think Citigroup can earn $1 per share" that would mean the company has earnings power of $29.2 billion. This would make it the most profitable company in the world. This would seem unlikely, but if you have a strong case then make it.

My analys: Citi first quater 2010 make 4.4 billion only ,this is one of the best first quater in the historical bull run. Hence, i would think that it is almost impossible to achevie 29.2 billion for next few years