INVESTING: Citigroup plods along while financial stocks are mired

Citigroup reported another great quarter last week and, once again, not much is happening with the stock.

It is starting to get a little routine. The story inside the company seems to get a little brighter every few months, but the stock has been trading sideways for two years.

It is getting a little more popular these days to turn away from financial stocks because of rising interest rates. (Although the only rates that are moving higher are those controlled by the Federal Reserve. The 10-year Treasury note began 2004 at 4.21 percent and it traded last week at 4.24 percent.)

I am seeing weakness in financials and brokers lately, but Citigroup doesn’t look nearly as bad as the rest of the industry.

On a comparative basis, Citi has numbers that really stand out. The company sells for a 13 price to earnings ratio vs. 19 for the rest of the market. Citi is paying a 4-percent dividend while the average payout for the Standard & Poor’s 500 is 2 percent. Revenue and earnings growth are slower than most large-cap stocks, but the company’s board just approved a $15 billion stock buyback. Another constant lately is that Citi is always raising its dividend and buying back stock.

I do not own Citi for a lot of reasons. One of the strongest reasons I don’t own the stock now is opportunity cost. I have been saying for the past month that whenever this current correction ends, technology stocks will bounce hard and fast. I am keeping a healthy cash pile to take advantage of that bounce when it happens.

But the high-dividend, low-P/E and steady (albeit slow) growth rate are interesting reasons to keep an eye on this stock.

When it comes to the monster buyback Citi just announced, I view this as a strong longer-term signal from the company that rising interest rates will not completely derail earnings growth. Logically, it doesn’t sound or feel right to be buying finance stocks in this environment. But I remember how well the transportation stocks did in all of 2004 in the face of crazy oil prices. It’s times like this when knowing how to read charts really pays off.

The time to buy Citigroup is if the stock can break above $50 a share with some attitude.

The final piece to the puzzle of determining when this correction will end is one or two hard down days, those when more than 90 percent of all the action (volume and price) is to the downside. That day could be coming soon.

If we don’t get a day like that on the New York Stock Exchange, then at the very least the NASDAQ needs such an episode. The tech stocks have been dogs since the middle of December, and a 90-percent downside day is needed. I have a feeling tech will bounce hard when the rally gets started, but a full washout beforehand will increase my confidence tremendously.

There is early evidence that demand is increasing on the tech front, but supply has to be dealt with as well. Sharply lower prices over the near term could serve as a means of exhausting that supply, allowing the improving demand condition to take over the market.