Spanish Bank Stocks

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Recently there was a mention in the BusinessWeek that Spanish Banks seem to have “escaped” the sub-prime crisis. This was made possible due to savvy strategies followed by the managements of these banks.There are only two Spanish Banks listed in the US. Banks of Spain provide an indirect entry into the Latin American market as they have a presence there.Recently they are also trying to gain a foothold in the US banking market.

Details about the two banks are as follows (all data as of June 16,2008):

1.Company: Santander Finance Preferred SA
Ticker: STD
Price per share: $19.12
Dividend Yield: 8.99%

S&P rates STD as a five star stock.Santander is a giant bank with a market cap of over $120B and 6 Billion shares outstanding comparable to Bank of America (BAC). The stock is cheap with a PE of 10.33 whereas BAC has a PE of 12.56. Dividend yield is also higher than BAC. Over the past 52 weeks BAC has fallen over 40% but STD has been flat with a 3.93% growth. The 5 year earnings growth at 11.98% for STD is significantly higher than BAC(2.26%).

2.Company: Banco Bilbao Vizcaya Argentaria S.A.
Ticker: BBV
Price per share: $20.63
Dividend Yield: 8.24%

Banco Bilbao stock has fallen just over 13% in the past 52 weeks.The 5-year Earnings growth is projected to be over 21%.PE is just 8.12. S&P rating is 4 stars.

Related Article:
1. From IBD – Spanish Bank Sticks To What It Knows Best And Spreads Globally

Emerald Isle ADRs

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In this post, lets list all the Irish ADRs trading in the US.Irish stocks have not been doing well for the past few months or so due to slowdown in the Irish economy. However they may be good picks at this time since some of these stocks have excellent dividend yields. For eg. – The Governor and Company of The Bank of Ireland (IRE) has a yield of 11.40%.

The complete list of sponsored Irish stocks are as follows:

[TABLE=60]

Another easy way to invest in Ireland is to pick up a fund such as the The New Ireland Fund (IRL), a closed-end fund. It is cheap now as it is trading at a discount of 8.51% to its NAV.

Why should you invest in Foreign Stocks?

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The answer to the title question is: For better returns and diversification purposes.

Simply put, in this age of globalisation it is almost a requirement to invest in foreign countries if ones to make above average returns. It does not mean putting 5 to 10% as most Americans do. it means allocating 30-40% of ones portfolio to foreign equities. An average investor in the US has less than 10% of his portfolio invested in foreign stocks.

Of course there are many risks to investing in foreign stocks.For a brief summary go to the SEC page on International Investing.

Today foreign companies are competing and growing rapidly when compared with US companies. For example, the market capitalization of all the stocks listed in the New York Stock Exchange (NYSE) is about $27.1 Trillion as of December 31,2007. Out of this, 421 foreign companies’ capitalization is $11.4 Trillion. This shows that foreign companies are increasingly becoming more powerful and important in the global market place. On a worldwide basis the US markets constitutes only 45% of the total market capitalization of all companies. In addition to the NYSE there are many more foreign stocks listed in the Amex,Nasdaq and the OTC markets.

In addition to the above reasons, investing in foreign stocks may provide higher returns than investing in US stocks.

The following table and chart compares the Total Return of MCSI EAFE against US Indices for a period of 25 years. The MCSI EAFE Index is the all Non-US major stock markets of the world including Australasia, Europe and the Far East.

Total Return – MCSI EAFE Vs. US Index

[TABLE=59]

Chart: Total Return – MCSI EAFE Vs. US Index

US-NonUS-Returns

As we see in the above table and chart, in the past 25 calendar years foreign stocks have outperformed US stocks in 15 years.

From the above data, we can also infer the following:

1. In the past 5 years (2003 to 2007), foreign stocks have returned far higher returns than US stocks for each year. The year by year return difference is as follows:

Years 2003 and 2004 – Foreign stocks returned 10% higher than US stocks
Year 2005 – Foreign equities’ return was 8% higher than US stocks
Year 2006 – International stocks returned 12% higher then US stocks
Year 2007 – Foreign stocks returned 6% higher then US stocks

While some portion of this higher returns is due to the dollar depreciation, the majority is due to foreign companies making higher profits than our domestic ones.

2. From 1995 to 1999 during the high tech craze, the US markets outpaced international markets.

So overall foreign stocks performed better in most of the past 25 years. As US economy struggles to recover it may be the right time for US investors to take a fresh look at foreign markets and invest according to their risk appetite.

Question:

What is you portfolio allocation for foreign stocks?. Do you think you need to re-allocate your portfolio now?. Which country/region is your favorite? Post your story on portfolio allocation in the comments section.

FEZ: 50 European Blue Chips in 1 ETF

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During these turbulent market times,it is a great idea to stay with large caps – especially Blue Chips.Many of the blue chips are at attractive levels now. Large caps tend to weather the storm better than small and mid caps. Thats why you will see that small and mid caps are doing worse than large caps this year as more and more investors are switching out of small caps into large caps.Large cap blue chips offer good dividends and offer stability to a well-built portfolio. This brings us to the essence of this post – which is the ETF for the top
50 European Blue Chips.

There are many ETFs for covering Europe.However only one ETF is designed to imitate the DJ Euro Stoxx 50 Index. This ETF is from State Street with the ticker FEZ. DJ Euro Stoxx 50 consists of the 50 blue chip stocks from the Euro Zone. This covers 12 countries which have Euro as their currency.These countries are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy,Luxembourg, the Netherlands and Portugal.The UK and the Scandinavian countries are excluded since they have their own currencies.

ETF Analysis:
FEZ has assets of $453+ Mil. an expense ratio of 0.32%.The Dividend Yield is 2.92% and the PE is 10.50.

Portfolio Analysis:
The fund is heavily weighted in Financials with about 32% of portfolio. So with the current mess in the financial sector this can be considered as a problem.However traditionally European banks have followed strict rules in lending and are not as reckless as the US banks.Yes banks in UK have been hit hard but they are not part of this ETF.Sure many of
the European banks like written off huge losses but that I think they will come out of this fine.It is higly unlikely that they will cut dividends.Societe Generale of France, which is part of this ETF crashed bigtime recently due to one rogue trader.However that is an exception and now the banks has taken measures to shore up its capital base. Many of the country specific ETFs for Europe also have the highest portfolio allocation for financials.So this 32% is not that high and the other sectors in the ETF act as a counter-weight to the financials.

The other two highly represented sectors are the Utilies with 12.5% and Energy at 10.2%.Industrials comprise 7.5% of the fund. Country-wise France and Germany dominate the fund.France has 35.09% and Germany at 27.58% of the fund.

The top 10 holdings are listed below.If a constituent is listed in the US, the ticker is given.

Top 10 Holdings (As of June 5,2008):
1. Total – TOT
2. EON AG – EONGY
3. Banco Santander – STD
4. Telefonica SA – TEF
5. Nokia Oyj – NOK
6. Eni – E
7. Siemens AG – SE
8. Unicredit
9. Suez – SZEZY
10. Arcelormittal – MT

FEZ is currently trading at a premium of 1.14% to its NAV.Usually you want to buy funds which are trading at a discount at a discount.But here since it is not trading at a huge premium we can say that is fairly priced and one can pick up some without worrying too much.

The annualized returns are follows (as of March 31,2008):
1 Year – 5.74%
3 Year – 15.99%
5 Year – 23.90%

Company Profiles:

1.Total S.A. – France
Total (TOT) is the world’s 4th largest multinational energy(oil & natural gas) company.Mainly operates in the production and distribution of oil. Has interests in chemicals as well.Spun-off chemical subsidiary Arkema (ARKAY) in 2006.

TOT has a dividend yield of 3.74% and a PE of 8.88.Total’s revenue per year exceeds $200B and its peers are other giants like BP,Shell,Eni,etc.

2.EON AG – Germany
EON (EONGY) is a multi-utility operating in water,natural gas and electricity
business.

Has a yield of 3.04%.PE is 14.62 and revenue is over $100B.Excellent long-term play.Recently announced a stock split as well. More info on the split can be found here.

3.Banco Santander – Spain
Banco Santander (STD) is a large Spanish bank with a market cap. of over $100B.
Is also the 3rd largest bank in Europe.

Current yield 8.98% and PE is 10.25x.SP has a 5 star rating on STD. STD provides an indirect exposure into Latin American countries since it has operations there as well.

4.Telefonica SA – Spain
Telofonica (TEF) is a giant telecom provider opeating in 23 countries and has more than 218 Million customers.Operates in Europe and Latin America.

TEF has a yield of 4.6% and the beta is 1.1.Annual revenues exceed over $87B.

5.Nokia – Finland
Nokia (NOK) is world class cell phone maker named after a village.Nokia is a household name in many emerging markets as well.

NOK has a 5 year earnings growth of over 19% and the PE is 8.75. YTD the stock is down over 33%.

Profiles of other FEZ constituents will be added soon.

Note: All stock related are as of June 11,2008

Past Dividends for ADR Stocks

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From this page, you can access the dividend history for many foreign ADR stocks. This includes the dividend history of foreign stocks traded on the organized exchanges and the OTC (pink sheet) market.

Click on the link below on the first character of the stock ticker to go to the dividend history page. For eg. – click on “A Stocks” if you want historical dividend information for Australia and New Zealand Banking Group. (ANZBY).

1. A Stocks

2. B Stocks

Note: New stocks will be added on a regular basis.So check back often !.