Unfortunately, it’s very hard for certain companies to regain the trust of investors once they’ve lost it. In the case of Delta Air Lines(DAL), Citigroup (C), and General Motors (GM) stock, long-time investors have every right to be cautious about the cheap stocks due to the companies’ past troubles.
While each one of these companies has made major improvements to its business in recent years, their stock prices indicate that investors remain cautious about getting burned again.
Citigroup (C): King of Cheap Stocks
Investors lost a lot of money during the Financial Crisis, but Citigroup was one of the handful of “too big to fail” banks that was at the very epicenter of the problem. C stock paid the price for it, and became one of many, many cheap stocks that were cheap for a reason.
Not only did Citi’s reckless mortgage lending behavior require a $25 billion TARP bailout, the government had to tack on an extra $20 billion liquidity infusion to protect the financial system from Citi’s $300 billion toxic asset pool in 2008. Ultimately, the U.S. government had to temporarily buy 36% of all Citigroup stock to help the ailing bank navigate the crisis.
During that stretch, C stock lost more than 95% of its value. Now, eight years later, Citi has paid its fines, shored up its balance sheet and sold off more than $700 billion of its riskiest non-core assets. What’s left is a company that is generating consistent earnings that are currently at a post-crisis high, but a stock that trades at a P/E and forward P/E of only 7.2 and 6.6, respectively. Sure, Citi has burned investors in the past, but the balance sheet is better than ever and the bank’s margins should only get higher as interest rates rise.
General Motors (GM) Stock
GM shareholders were…
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