Light at the End of the Tunnel?

Citigroup (C) $45.61 (.05) P/E 10.72 Yield 4.62% Dividend Pay Date 8/24/07

JP Morgan Chase (JPM) $43.00 (.30) P/E 9.65 Yield 3.47% Dividend Pay Date 7/31/07

There may be light at the end of the tunnel at two of the big banks. At the end of the 2nd quarter, Eddie Lampert's hedge fund, ESL Investments, raised its stake in Citigroup to 24.8 million shares from the 15.2 million held as of March 31, according to a Securities and Exchange Commission filing released on August 14. Exactly when the purchases were made is not known. C has declined substantially so far in the 3^rd Quarter as the subprime mortgage fiasco unfolds before investors. Although Sanford Bernstein has been estimated that Citigroup may lose $3Billion in the 3^rd Quarter as a result of the subprime mess, Citigroup is poised to come through the recent market turmoil in better shape that many banks. Lampert is widely known for the quality of his investments. Analysts from Sanford Bernstein and Sandler O’Neill rate the stock as Outperform with price targets of $65 & $62 respectively. Citigroup has a current yield of 4.62%, equivalent to a bond.

While JP Morgan Chase is struggling in the current market to complete many of its current deals, the bank is also poised to do well in the long term. JP Morgan has positioned itself to take advantage of the current weak environment due to the bank’s strong capital and liquidity positions. JP Morgan , like Citigroup, pays out a decent dividend to reward investors for their patience. Currently JPM has a dividend yield of 3.47%.

Has the market bottomed out? It is too soon to tell. It may be best to wait before committing funds to either of these stocks. Yet in the long term, Citigroup and JP Morgan should provide investors with a good investment. As always the reader is reminded that I am an amateur investor. Each investor should do his own due diligence before committing funds to any equity. There is potential for substantial loss of capital by investing in equities. I am long in both Citigroup and JP Morgan Chase at the time of this writing.