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Do Citigroup Inc (C)’s Great Q2 Results Mean It Is Still a Buy?

Citigroup Inc (NYSE:C) has more than doubled in price over the last year, as U.S. stocks generally have done well and investors have become more confident in the safety of the bank’s assets. The stock still trades at a considerable discount to the book value of its equity, with a P/B ratio of 0.8. According to the results that Citigroup Inc (NYSE:C) has released for the second quarter of 2013, non-interest revenues rose strongly during the quarter versus a year earlier and with the bank’s operating expenses actually coming in lower than they had been in the prior year period earnings were up by 23%. This was also a small increase in net income on a q/q basis.

On an adjusted earnings basis, Citigroup Inc (NYSE:C) earned $2.57 in the first half of the year and if we annualize that figure we end up with a P/E multiple of only 10. Considering that the price-to-book multiple suggests that the stock is undervalued compared to its assets, investors could certainly make the case that Citigroup Inc (NYSE:C) is still a prospective value stock. Even if the improvement in its earnings compared to the first half of 2012 is mostly a one-time increase, and bottom-line growth is limited going forward (which investors should probably assume in the name of conservatism, particularly with the lower profit growth rate relative to Q1 of this year), as long as the company sustains its current business it would be attractive in earnings terms.

Citigroup Inc (NYSE:C)As part of our work researching investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year) we track quarterly 13F filings from hundreds of hedge funds. We can also use this database to look up which notable investors are interested in particular stocks. Billionaire David Tepper’s Appaloosa Management reported a position of 8.5 million shares in Citigroup Inc (NYSE:C) as of the end of March of this year (see Tepper’s stock picks) while Citadel Investment Group, managed by billionaire Ken Griffin, disclosed ownership of 6.7 million shares (find Griffin’s favorite stocks).

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