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Citigroup vs. Goldman Sachs—The Better Buy: Strategists

Thursday, 11 Mar 2010 | 4:10 PM ET

Financial giants Goldman Sachs and Citigroup have seen large moves in the last year: Since the lows of March 2009, Goldman Sachs has moved up more than 80 percent while Citigroup jumped over 160 percent. Do these stocks have further room for growth? Christopher Whalen, senior vice president and managing director at Institutional Risk Analytics, and Jeffery Harte, managing director in equity research at Sandler O’Neill, shared their insights.

Time to Buy Goldman & Citi?
Is it time to buy the banks? Chris Whalen, of Institutional Risk Analytics, and Jeff Harte, of Sandler O'Neill, share their insight.

“If you look at upside in the stocks, Citigroup is still the place to be,” Harte told CNBC.

“You’ve got very underappreciated international exposure, which everyone in the world wants now, and both management and balance sheets have been cleaned and are in much better shape.”

Harte said he is “cyclically bullish” on investment banking. He has “buy” ratings on both Goldman Sachs and Citigroup with price targets of $203 and $5.50, respectively.

“If you were to classify them as a hedge fund, they’ve got significant competitive advantage versus anyone else out there and they’ll be the best performers,” he said of Goldman Sachs.

Counterpoint: 'Potential Problems'

In the meantime, Whalen said he sees potential problems with Citigroup’s revenue.

“The story at Citigroup is about cost cutting, which leads me to my concern, which is revenue,” he explained.

“They are under attack in Asia and in the Middle East, where large European banks and others are trying to take their business.”

“So for me, once we get rid of Citi Holdings, which is essentially the liquidating part of the business, what’s the rest going to look like—and are they going to be competitive?,” he asked. “Because if it’s just a domestic U.S. bank with diminishing capital market business and a shrinking international business, I’m not sure that’s a great story.”

Meahwile, Whalen has a “neutral” rating on Goldman Sachs and said he doesn’t see stability in their earnings.

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Financials - More Insights:

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Disclosures:

Sandler O’Neill has received compensation from C and GS for providing products or services other than investment banking services in the last 12 months. C and GS are clients of and receive non-investment banking securities-related services from Sandler O’Neill. In addition, Sandler O’Neill has received compensation from C for investment banking services in the past 12 months and expects to seek compensation in the next 3 months.

No immediate information was available for Whalen or his firm.

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