Run for the hills- the European economy is collapsing. Well, maybe, but it looks pretty bad. So what is an investor to do?
It’s natural to assume European stocks, European financial stocks, and especially Spanish banking stocks are obvious things to avoid. But you might be mistaken. For one, Banco Santander (STD), Spain’s largest bank at the heart of the European financial apocalypse, is looking significantly undervalued.
Banco Santander has taken a serious hit from the economic turmoil in Spain. Shares are down over 43% this year, and 21.4% this quarter. The stock is trading like it’s near bankruptcy, but some analysts are arguing that investors are simply unable to see past the current perception.
Consider: Far from being reliant on the financial solvency of Spain and its European neighbors STD has more diverse international financing than its peers. In 2011 it took more profits from Latin America (56%) than Continental Europe and the United Kingdom (29%) combined. So in actuality, the revenues from Spain and Portugal (13%) are quite small.
According to Calman Valores on Seeking Alpha, “the bank continues to exhibit strong risk management practices, through reducing loan exposure to troublesome markets, de-leveraging its balance sheet and taking measures to increase liquidity. Even with the further deepening of the Spanish economic crisis its credit risk indicators are still healthy and within acceptable parameters.”
Zacks research and ratings indicate Banco Santander has a target price of $14.93 – a potential upside of 151.7% – and average risk levels.
Recent Performance
According to the Wall Street Journal, Santander’s Wednesday 4.22% gain, bullish after hour trading and small gains on Thursday had little do with this. Instead, the Journal wrote “The Bank of New York index of ADRs climbed 2.8% to 113.69 as European Central Bank President Mario Draghi said markets are underestimating political leaders’ commitment to address the euro crisis.”
This might strike you as interesting. It wasn’t so many months ago that the entire markets rose and fell with the degrees of insecurity felt about Europe’s, mainly Greece’s, prospects. The high correlation offered a wealth of opportunities for traders to buy in at low prices before a calm (however brief) soothed the masses.
Business Section: Investing Ideas
If Banco Santander indeed has relatively little exposure to the European financial crisis, it is arguably trading at an unfairly low valuation. But, as it is often said, “Markets can remain irrational a lot longer than you and I can remain solvent.”
Do you think Banco Santander will stand on its own?
Use the Compar-O-Matic to compare STD’s performance with other large international banks:
Turbo Chart: Compare STD’s performance against the S&P 500 index:
Interested readers might also see the recent (last month or two) special report on banking in The Economist. Santander is mentioned several times, including pointing out that it is the most operationally efficient bank globally, largely due to its relentless standardization of systems, etc, across all of its global operations.
unable to comment
Well, I'd like to believe it, but doesn't that make Santander the only large bank on the planet without problems. Bank stocks are not worth the risk right now. JPM proved that.
I think STD is a good buy, however, there are a lot of things we do not know. STD core tier 1 ratio is around 10%, healthy but fragile. A few billion unexpected event cant make this drop below 8 or 7% and this level is quite critical. We should talk about buffer Core tier 1 ratios and not whole ratios, since problems start when this falls below the critical level. In STD case their buffer may be 2 or 3% (10-8 or 7%). STD has low price to book, high yield and godly diversification. However there is leverage working against it and a backdrop of massive uncertainty concerning one of the traditionnally safe asset that is hoarded on bank and customers balance sheet at 100% face value : Spanish bonds.
Facing this situation, for similar valuations, twice better core tier 1 ratios in high interest, low debt, solid growth Brazil economy, BSBR is much more safe and promising than STD. Please also note that STD trouble can hurt BSBR in the sole following way : forcing STD to sell BSBR shares to another party. STD can't ''steal'' or borrow unfairly from BSBR due to their corporate structure.
Be extremely careful, what looks cheap and is leveraged was often purchased by value investors only to teach them later about why and when it would justifiably go cheaper amid trouble in excess of what was visible!
I don't see the report from Zacks research regarding your comment of a "price target of $14.93 – a potential upside of 151.7% – and average risk levels." The last report Fidelity has, Zacks has it at underperform.
You can find all this data on the Company Snapshot on Kapitall: https://www.kapitall.com/?tool=CompanySnapshot&pa…