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You’ve probably never heard the name Edgar Wachenheim, but Wachenheim is one of the best stock pickers alive.
Wachenheim is the chairman and chief portfolio manager of Greenhaven Associates. Under his leadership in the last 25 years, Greenhaven—which has roughly $7.5 billion in assets under management—has achieved average annual returns of nearly 19%.
So when Wachenheim has something to say, investors should listen up.
Today, Wachenheim has good news for Citigroup (NYSE: C), which he sees doubling in the next two years.
“All I can do is buy stocks that I think are deeply undervalued. The numbers on Citigroup were clear: They had their meeting about a year ago—July of last year—and they projected $9 per share of earnings for 2020,” Wachenheim said at the Delivering Alpha conference. “That $9 a share was based on the old tax rate. If you increment it to the new tax rate, it’s now $10.20.”
“So all I can do is say take the different businesses within Citigroup and come to some conclusion,” he said to CNBC. “We came out to about 13 times earnings, so it would be a $130 stock.”
Right now, Citi’s shares trade at a cheap 6.8 times Wachenheim’s 2020 profit estimate on a price to earnings multiple basis.
Citi didn’t have the greatest second quarter, and shares fell late last week due to concerns about revenue growth slowing in its North American credit card business, though the bank did report a jump in second quarter profits thanks to the anticipated windfall from Trump’s tax cuts. The company reported a -6% decline to $3.08 billion in fixed-income revenue, though equities revenue soared 19% to $864 million.
Wachenheim also argues that the bank’s success in its corporate cash management business is particularly important to his valuation of Citigroup.
“Some of their businesses are really good. They’ve got Trade and Treasury Solutions: It’s a very good business; they and J.P. Morgan sort of dominate it,” he said. “It’s a very high return business. That’s worth more than 16 times earnings.”