Chasing Value: Citigroup Beats Apple

Earlier in the year I posted Apple $300 -- Not This Year! This was met with hostile reaction in some quarters. Perhaps anticipation of fervent Christmas sales will propel the stock higher, but for now I stand on solid ground.

Citigroup closed yesterday at $3.85. It will not reach $300 per share either. That may take another generation to witness, if ever. The following five-year chart shows the divergence of fortune between AAPL and C. I imagine somewhere on the planet some poor soul sold Apple to buy Cititgoup way back when. That would be sad. But going forward that might be a good move.

Take a look at the year-to-date chart and we find that the two companies diverge no longer. I would contend that going forward Citigroup will exceed Apple's gains and be the more rewarding investment. To be clear, Apple's great run is still going strong, but Citigroup is just getting started again, and with a lot less baggage.

It is conceivable that Citigroup could double in value in the next 12 to 24 months. That's not true for Apple. I doubt even the biggest Apple bull will foresee it as a $500 billion company in the same time frame.

Looking at the metrics for both companies, we find compelling data. Citigroup is a mess with a negative PE, very high long-term debt, terrible ROE, ROA and ROIC, and profits are more a rumor than a fact. Apple on the other hand is golden. It has a slew of great products, $48 billion in cash and growing, no debt, huge profit margins, high ROE, ROA and ROIC with the promise of more of the same. The average investor has to like Apple more than Citigroup.

The point I am trying to make is that the average investor is not the shrewd investor. The shrewd investors are buying Citigroup. Why would they do that? Simple -- there is a lot more money to be made in a turnaround play than a market darling after a fantastic five-year run.

Look closer at the data. Apple has a marvelous price-to-earnings-to-growth (PEG) ratio of 0.80. That is very good. As a matter of fact anything under 1.0 or approaching it is fantastic. However, Citigroup has a PEG of only 0.47!

Many savvy investors look to other data points as more important than the PE ratio to search for value. Most look at price-to-cash-flow (P/CF). Here Apple gets trampled. Apple's P/CF is 17.01, whereas the market average is 10. For Citigroup you are paying a minuscule P/CF of 1.19 -- that's cheap!

The same holds true for two other telling metrics. Apple's price-to-sales is 5.27 while Citi's P/S is 0.36; now that's noteworthy. Apple's price-to-book (P/B) is 5.65, hardly a bargain, but Citi comes in at an attention-grabbing 0.71.

Investors buying Citigroup are paying less for cash flow, sales and assets than those buying Apple. You are hearing it here first, folks. I think Citigroup has the potential to outperform Apple for the next five years.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: He owns shares and options of C.