The Only European Stock I Would Buy Right Now
One of the best and most profitable times to buy stocks is when bad news is at its apex and everyone is preaching doom and gloom.
This is the one proven stock market pattern that constantly repeats itself. In fact, it makes as much sense now as it did during the Great Depression. For example, submarine builder General Dynamics (NYSE: GD), returned an astounding 55,000% from the Great Depression lows of 1932 to 1954. To quote uber-investor Warren Buffett, "A climate of fear is the investor's best friend. Big opportunities come infrequently, buy when everyone else is selling."
Rather than buying stocks on the way down, I wait until there is a glimmer of hope and shares begin to show signs of an upward move. This move is often enough to attract larger players that will continue buying, thereby pushing shares higher.
This doom-and-gloom buying opportunity pattern is very clear right now in Spanish stocks. Things are looking dire in Spain, as a crushing national debt and recent credit downgrade have placed the country's economic future in jeopardy.
Needless to say, Spanish bank stocks were hit hard. This was particularly true for Banco Santander (NYSE: SAN), the largest bank in the euro zone and one of the largest in the world. Because of the Spanish crisis, Banco Santander's stock value spiraled below $5 from its 52-week highs of more than $9.
Interestingly, Spain accounts for only 14% of the bank's profits. This is part of the reason I believe investors like you and me can benefit from the Spanish crisis.
As I said before, I like to wait until shares start to move on an upward trajectory. And I think that glimmer of hope just started to appear for this stock…
News of an alleged European Central Bank bailout and optimistic bank stress test results have provided clear indication that the Spanish banking industry is not as dire as first thought. Investors who realized this early have already profited handsomely, as the stock price currently flirts with $8, more than 60% above the levels seen in July.
More growth ahead
The good thing about Banco Satander is that it's widely diversified, with more than 40% of its revenue coming from Latin America. This limits the bank's risk from Spain's fragile economy, while taking advantage of the profit opportunities in this fast-growing region.
Taking a look at the numbers, Banco Santander's earnings per share were at $1.06 in 2011, while its debt-to-equity ratio was a very low 0.3%. While earnings were down 33.4% from the previous year, the drop was primarily due to a 150% increase in investing activities.
A solid credit rating of "BBB+" combined with a projected dividend yield of about 8% makes the bank a strong choice for long-term growth investors.
Technically, the stock has broken above the 50-day simple moving average, where it then stalled out around $8 prior to finding support at the 50-day simple moving average. The weekly chart makes the stock look like a good buy presently with a target price of $12 and stops at $6.
Risks to Consider: While only 14% of Banco Santander's profits come from Spain, more than 30% of its revenue is from this troubled nation. If history is any guide, then Spain will be bailed out and get back on track very soon. The European Union simply can't afford to allow the Spanish economy to fail. However, there is a risk that things will get worse before they get better. In addition, although Latin American economies are growing, Banco Santander's bad loan ratio is increasing in this region. While it's not yet a pressing issue, it remains a potential thorn in the side of further growth.
Action to Take --> Do like Buffett and buy stocks when everyone else is selling them. Banco Santander has already shown signs of improvement, which makes this an even more attractive investment. An entry now with stops at $6 and a $12 target makes solid sense.
P.S. -- If you want truly high yields, looking overseas could be your best bet. StreetAuthority Co-Founder Paul Tracy, the chief investment strategist behind High Yield International, has identified 200 of the safest, highest-yielding investments based outside the US... and they all yield 12% or more. For details about these stocks, including several names and ticker symbols, click here.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.