But Citigroup and Wells Fargo are the only two remaining institutions still beholden to TARP. Once their requisite offerings are done – and Wells on Monday night announced it would hold its own $10.4 billion common-stock offering to pay back TARP – the banks should restart their push higher, Cramer said.
For now he’s only recommending Citi, though. Here are his six reasons why:
1. Wells Fargo, as a result of buying Wachovia, has too much mortgage exposure. More mortgages mean more potential foreclosures, and that will hurt earnings. Citigroup shouldn’t have that problem.
2. Citigroup does more business overseas, where its reputation is much more intact. Cramer said the international footprint would make Citi a great call on worldwide trade expansion.
3. The government’s 34% stake, totaling 6 billion shares, in Citigroup is not an issue, especially when the average daily trading volume is in the hundreds of millions of shares. Whether Washington slowly sells its position or holds on for a higher price, Cramer called it a non-issue.
4. Citi has already dropped significantly ahead of the offering, Cramer said, much more than it deserves. That gives investors a great, great entry point.
5. The share price is just $3.70, a near lottery-ticket price with somewhat similar potential. While the dollar amount doesn’t matter, Cramer does bless this as a single-digit speculation play, the kind that investors seem to love so much.
6. Cramer thinks Citigroup could triple in price over the next three years. As the company cleans up his balance sheet, the resultant profits will restore its book value. And banks trade as a function of book value. So the refrain going forward is, “$12 by the end of 2012.”
Now, this move won’t happen overnight, Cramer said, rather over time. But as Citigroup turns around and recovers, so too will the share price. That’s why investors should buy in now.
“This will be the ideal spec in your portfolio,” Cramer said.
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