{"id":29731,"date":"2012-05-18T07:25:48","date_gmt":"2012-05-18T11:25:48","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/05\/bargain-hunting-in-spain\/"},"modified":"2012-05-18T07:25:48","modified_gmt":"2012-05-18T11:25:48","slug":"bargain-hunting-in-spain","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/05\/18\/bargain-hunting-in-spain\/","title":{"rendered":"Bargain Hunting in Spain"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

The first time I set foot on Spanish soil was the spring of 2000, and what a fantastic time it was to visit.\u00a0 The dollar was near its all-time high versus the Euro, and an American could live like a king on a pauper\u2019s budget.<\/p>\n

My, how times have changed.\u00a0 I most recently visited Spain in the summer of 2009, and a cup of my beloved caf\u00e9 con leche<\/em> in Madrid\u2019s Plaza Mayor had more than doubled in price when translated into dollars.<\/p>\n

Of course, I gladly paid it.\u00a0 Even at an inflated price, there are few pleasures in life like enjoying a hot caf\u00e9 con leche<\/em> in a Madrid caf\u00e9.<\/p>\n

Two years and a sovereign debt crisis later, prices in Madrid\u2019s cafes are a little more reasonable.\u00a0 But prices in Madrid\u2019s stock market are downright extraordinary.<\/p>\n

Consider the broad Ibex 35 Index, which tracks Spain\u2019s blue chip companies. \u00a0At time of writing, it trades below the crisis levels of 2008; in fact, the index now sits at levels last seen in 2003.<\/p>\n

The index sells for just 9.8 times earnings and yields and eye-popping 8.3 percent in dividends.\u00a0 Remarkably, this is even cheaper than Greece\u2014despite the now almost certain ejection of Greece from the Eurozone and the havoc that that will wreak.<\/p>\n

Value investors have a nasty habit of jumping into investments too early, and I am certainly no exception.\u00a0 I turned bullish on Spain in the first quarter, buying shares of the iShares MSCI Spain ETF (NYSE: $<\/span>EWP<\/a>)<\/strong> in my Tactical ETF Model<\/a>\u2014and taking substantial losses for it in the months that followed.<\/p>\n

Value investors also tend to concentrate too heavily on the fundamentals and valuation of a company while ignoring the larger macro picture.\u00a0 More often than not, macro concerns prove to be noise.\u00a0 But during times of extreme stress, they have a way of overpowering company fundamentals.\u00a0 For example, Spanish telecom giant Telefonica\u2019s (NYSE: $<\/span>TEF<\/a>)<\/strong> decision to reduce its 2012 dividend had more to do with conserving capital in a tight credit market than it did the company\u2019s financial health.<\/p>\n

Still, today most investors would appear to making the opposite mistake: focusing entirely on macro concerns while completely ignoring the incredible value in front of them.<\/p>\n

I\u2019ve recommended Telefonica in recent articles<\/a>, and I\u2019ll spare readers a lengthy rehash of my reasoning.\u00a0 \u00a0I\u2019ll reduce it to five \u00a0words: big dividend, emerging market exposure.<\/p>\n

The same reasoning applies to banking giant Banco Santander (NYSE:$<\/span>STD<\/a><\/strong>), the largest bank in the Eurozone by market cap.\u00a0 \u00a0Santander gets roughly half its profits from the emerging markets of Latin America and another quarter split between the United States and United Kingdom.\u00a0 Only 13 percent comes from the bank\u2019s home market of Spain.<\/p>\n

Santander trades for just 60 percent of book value and its dividend is over 13 percent at current prices.\u00a0 Could that dividend come under pressure in another wave of capital market volatility?\u00a0 Of course.\u00a0 But at current prices, it is worth the risk.<\/p>\n

Moving on, investors should consider electric utility Iberdrola SA (Pink:$<\/span>IBDRY<\/a>). \u00a0<\/strong>Like the other Spanish stocks mentioned, Iberdrola gets only about half of its revenues from Spain.\u00a0 Roughly a quarter comes from Latin America, and the remainder comes from the United States, United Kingdom, and the rest of Europe. \u00a0For a globally-diversified utility, Iberdrola is a steal.\u00a0 It trades for just 0.62 times book value and 0.64 times sales and yields \u00a06.0 percent.<\/p>\n

Disclosures: EWP and TEF are holdings of the Sizemore Capital Tactical ETF Portfolio<\/a> and<\/em> Sizemore Investment Letter Portfolio.\u00a0\u00a0\u00a0\u00a0<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

By The Sizemore Letter The first time I set foot on Spanish soil was the spring of 2000, and what a fantastic time it was to visit.\u00a0 The dollar was near its all-time high versus the Euro, and an American could live like a king on a pauper\u2019s budget. My, how times have changed.\u00a0 I … <\/p>\n

Continue reading “Bargain Hunting in Spain”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-29731","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/29731","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=29731"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/29731\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=29731"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=29731"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=29731"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}