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Picture: REUTERS/JACKY NAEGELEN/ File photo
Picture: REUTERS/JACKY NAEGELEN/ File photo

Gary Booysen, portfolio manager: Rand Swiss

Buy: Citi

Citi is the smallest of the big four US banks. Right now, the bank has a market capitalisation of just more than $100bn, which makes it just more than half the size of Wells Fargo and about five times smaller than JPMorgan Chase & Co. However, its $1.66-trillion asset base is almost equal to that of Wells Fargo and only about half of JPMorgan’s. In terms of earnings, it is the cheapest and its dividend yield (at 3.9%) the highest of all US banks. So, why isn’t the market pushing this stock higher? Citi is in the midst of a turnaround led by CEO Jane Fraser. It has exited many global markets, simplifying the business structure and retrenching staff. That doesn’t make for good headlines and, so far, we have yet to see the restructuring efforts feed through to the bank’s results. But, if you’re looking for a stock to hold for the next three to five years, there could be serious upside. We have been adding to equity portfolios between $40 and $50 and would be looking for a 12-month price target of about $75. Should operational efficiencies take hold, we could easily see further upside.

Sell: Coca-Cola

Warren Buffett may drink five cans of Coca-Cola every day (and Berkshire Hathaway may hold 9.25% of the company), but I believe you can deploy your money more effectively elsewhere. There’s no question that Coca-Cola is an iconic brand; you’d be hard-pressed to find someone who has never heard of it. And if you’d bought in the latter half of the 1980s, you’d have hugely outperformed the S&P 500. But while investing 40 years ago would have seen you achieve a 12,550% total return from Coca-Cola (vs the 3,934% total return of the S&P 500), an investment 30, 20, 10 or even five years ago would have underperformed the broader market by about half. If you’d invested at the beginning of last year, your position would have been negative in a strong up year for US megacaps. The decision to avoid this stock is simple. Coca-Cola trades on 24 times historic earnings and is expected to grow revenue and earnings in the low single digits. That is an enormous premium to pay for a company that markets sugar water, in a world becoming more concerned about diabetes and obesity.

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