The old Wall Street adage about the dangers of catching a falling knife doesn’t seem to be scaring individual investors away from Citigroup Inc.
Some discount-brokerage firms report a surge of individual, or retail, investors buying shares of Citigroup during the past five months, amid the New York bank’s stock-price slide. For some investors, the chance to buy a Dow Jones Industrial Average stock at a low price, and the hope for a quick buck on a rebound, have proved too tempting to refuse.
“We’re speculators, and that can be really risky, but it’s worth it to take a shot,” said Jin Chen, a 22-year-old Rowland Heights, Calif., resident who recently bought 10,000 shares of Citigroup at $3.10 a share. “This is my opportunity to make some money.”
Despite Citigroup’s recent losses and worries about the impact of the recession, analysts’ average price target for the stock is $3.53, according to nine analysts tracked by Thomson Reuters. That is 32% higher than the price Wednesday. David Trone, an analyst with Fox-Pitt Kelton, said in a recent report that he expects Citigroup shares “to gravitate back up toward the $3 mark once the emotion of the moment passes.”
Part of Citigroup’s appeal for speculative individual investors is sharp percentage swings in the stock. Not since the dot-com boom and crash have stock prices moved as erratically as during the past year, and Citigroup is an extreme case. Citigroup’s 11% drop on Monday was followed by a 9.5% upswing Tuesday.
“We’re seeing enormous volumes in Citi … and the retail investors have the buying power to make the stock move,” said Joe Ricciardi, managing director with Knight Trading, which processes trades for several large online-brokerage firms. In the past three months, an average of 435.2 million Citigroup shares exchanged hands daily.
Several investors who recently bought shares of Citigroup said they are betting that the government won’t allow the bank to fail.
I got mine at $1.03 … just 6 cents off the low; but not nearly on the same scale as some of the buyers mentioned in this article. Even though the short-term targets are only at $3.53, I think that long-term there’s even greater potential, but don’t buy it if you can’t afford to lose it.