{"id":33620,"date":"2012-11-20T12:04:20","date_gmt":"2012-11-20T17:04:20","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/11\/for-a-year-end-rally-look-to-spanish-banks\/"},"modified":"2012-11-20T12:04:20","modified_gmt":"2012-11-20T17:04:20","slug":"for-a-year-end-rally-look-to-spanish-banks","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/11\/20\/for-a-year-end-rally-look-to-spanish-banks\/","title":{"rendered":"For a Year-End Rally, Look to Spanish Banks"},"content":{"rendered":"

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

The world is a funny little place.\u00a0 For all the talk of Greece (or Spain\u2026or Italy\u2026or Portugal\u2026) getting kicked out of the Eurozone, it is the United Kingdom\u2014which doesn\u2019t even use the euro as its currency\u2014that may be the first political casualty of the euro crisis.<\/p>\n

By this time next year, the UK might well have been kicked out of the European Union in all but name.\u00a0\u00a0 A disagreement over the European Union\u2019s budget\u2014Britain wants spending capped at 2011 levels\u2014may mark the unceremonious end to Perfidious Albion\u2019s European experiment.\u00a0 (I can imagine the break-up speech now; \u201cIt\u2019s not you, it\u2019s me.\u00a0 We\u2019ve just grown so far apart these last few years\u2026we\u2019re just so different\u2026it was never going to work, you and me.\u201d<\/p>\n

With or without Britain, 2013 promises to be an eventful year in Europe.\u00a0 I expect it to be volatile, but I also expect it to be wildly profitable for investors willing to stomach it.<\/p>\n

For the best shot at 50-100% total returns, I recommend take a look at Spanish banks, and particularly at Spain two premier global powerhouses: Banco Santander (NYSE: $<\/span>SAN<\/a>) <\/strong>and Banco Bilbao (NYSE: $<\/span>BBVA<\/a><\/strong>).<\/p>\n

Let\u2019s take a look at the numbers.\u00a0 Santander trades for just 8 times expected 2013 earnings and at just 0.69 times book value.\u00a0 It also yields a fat 9.3% in dividends.\u00a0 BBVA trades for a comparable 8 times earnings and 0.71 times book and yields 6.8 %.<\/p>\n

Both banks are cheap\u2026but both banks are domiciled in Spain.\u00a0 Shouldn\u2019t they be cheap?<\/em><\/p>\n

Not exactly.\u00a0 Santander and BBVA get the vast majority of their profits overseas, and particularly from their growing Latin American subsidiaries.\u00a0 Both banks offer great \u201cback door\u201d access to one of the few areas of the globe still growing.<\/p>\n

Yes, there is macro risk in buying a Spanish bank.\u00a0 Spain is at the center of the European sovereign debt crisis, and banks are at the mercy of their home country\u2019s sovereign credit rating.\u00a0 So if Spain \u201cblows up,\u201d it will take its banks down with it.<\/p>\n

I don\u2019t see this happening.\u00a0 Spain will fight it as long as it can\u2014perhaps another quarter\u2014but it will eventually have to ask the EU and ECB for a bailout.\u00a0 And when that happens, I expect it to be a mundane, administrative detail, not a catastrophic market event.<\/p>\n

Even outside of these two banking blue chips, there will be plenty of other opportunities to make money on Spanish banks in the year ahead.\u00a0 Wilbur Ross, the famous \u201cvulture investor,\u201d has been circling around Spain for months.\u00a0 According to\u00a0 Bloomberg<\/a>, Ross is looking to make investments in smaller Spanish banks once they start shedding their bad debts.\u00a0 The United States, Ireland, and Britain have already gone through this process\u2026and now it\u2019s Spain\u2019s turn.\u00a0 The Spanish government is in the process of setting up a \u201cbad bank\u201d to be a dumping ground for the country\u2019s non-performing real estate debt. It\u2019s expected to be up and running in early 2013.<\/p>\n

Ross will probably focus on smaller Spanish banks, some of which don\u2019t trade in the U.S. market with any volume to speak of.\u00a0 I intend to keep an eye on Ross\u2019s moves (you can follow his moves too at Guru Focus<\/a>) and may follow his lead when the time comes, but for now, Santander and BBVA remain the best bets for most investors.<\/p>\n

Disclosures: Sizemore Capital is long BBVA and SAN.<\/em><\/p>\n

The post For a Year-End Rally, Look to Spanish Banks<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

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