Published:
May 27, 2008
Bank stocks are reviled
today... That's why I'm interested in them.
There's nothing I like better than locking in an
amazing yield at a bargain price. And when a normally high-yielding
sector like the banking industry gets hammered, it creates an
opportunity to pick through the debris and find quality high-yielding
gems.
No doubt, the industry is troubled -- and investors are
understandably wary. The financial-services sector is enduring its worst
turmoil since the U.S. savings & loan industry nearly collapsed roughly
20 years ago. Ignited by last summer's meltdown of the U.S. subprime
mortgage industry, the credit crisis has spread to lenders of all kinds,
and almost every major banking company has been forced to
write down billions in assets backed by subprime mortgages.
With this in mind, why would anyone want to invest in banking
stocks in today's market?
Cashing Checks While the Banks Recover
Simple: because some high-quality banks are worth the risk, and their
current share prices reflect an unlikely worst-case scenario.
Investors sold off the sector like the plague -- even
the banks with limited exposure to the
credit crisis saw their share prices tumble.
And as the sector heads down the road to recovery, many
banks are posting some very high dividend yields -- which means we'll get
paid handsomely as conditions improve.
And conditions will improve. Because a highly
functional banking system is the backbone to a functioning economy, the
banking industry will get all the help it needs to recover. And to a
great extent, that's already happening.
In recent months, the Federal Reserve has cut interest
rates a number of times, pumping liquidity into the credit system. The
Fed has also taken other steps to ensure that banks have ample access to
inexpensive credit -- including creating a so-called "temporary auction
facility" to make it easier for banks to borrow money quickly if
necessary.
To maintain adequate financial strength, most major
banks have also received bailout cash infusions from private equity
firms and investors -- many of them in cash-rich Asia and the Middle
East -- who have assumed substantial ownership stakes in the companies. Over the next year, I expect more such transactions. While some
Americans may balk at seeing pieces of iconic American financial firms sold
off to foreign investors, these cash transfusions will guarantee that the
large banks make it through the current crisis intact.
Foreign Banks: Bargains That Outperform
| The best place to search for high-yielding bargains is in the
global banking sector.
While
foreign and domestic banks were equally punished in the recent
downturn, foreign banks stocks have consistently outperformed
domestic bank stocks. As you can see in my chart, during the
four years prior to the credit crisis, global banks outperformed
U.S. banks by a better than 2-to-1 margin.
The
economy is another reason to scavenge among foreign bank
stocks. The U.S. economy is weakening, and I don't
expect the situation to improve much in the |
 |
near future. In fact, the International Monetary Fund (IMF) has
estimated 176 countries will post stronger economic growth than the
U.S. this year. This will make foreign
banks a safer bet, since growth in their retail banking and commercial
loan businesses will help offset any credit weakness elsewhere.
Another great reason to invest in foreign bank stocks -- your returns
can get a boost from the declining value of the U.S. dollar.
Over the last few years, the dollar has been in an absolute free-fall against many of the world's currencies.
But the dollar's decline had one group of Americans celebrating -- savvy
investors in foreign stocks.
Say you invested 10,000 euros ($8,300) in a European stock in 2002.
Even if its share price went nowhere, thanks to a falling dollar you
could sell your shares, and those same 10,000 euros would now be worth
$15,700. That's an +89% gain from the currency fluctuation alone
-- with no share price appreciation. Of course, if the foreign
stock had also appreciated -- like I believe foreign bank stocks could
do from here -- that would make the gains even more dramatic.
And, of course,
the #1 reason for investing in foreign banks -- to capture the enormous
dividend yields they're dishing out right now.
In recent issues of my premium
newsletter...
High-Yield International, I've profiled a number of my
favorite foreign banks stocks, including a bellwether London-based bank that has
emerged from the credit crisis fairly unscathed. It
currently pays a solid 8.4% yield -- but has also boosted its dividend by
an average of +17% a year for the past six years. And with
exposure to some of the world's fastest-growing emerging markets, I
expect this well-run bank to deliver strong capital gains on top of its
above-average yield. And for the
strong of heart, I've also highlighted one of the largest, and hardest hit, banks in the
world -- a stock I expect to deliver +30% total returns in the coming
year.
If you'd like to learn the names of these companies -- plus
receive a steady stream of foreign stocks, funds and other
investing ideas with abnormally high dividend yields each and
every month -- then I'd like to extend you a personal invitation
to try my premium international investing newsletter . . . High-Yield
International.
Visit this link to learn
more.
Nick Lanyi
Editor
High-Yield International
About High-Yield International
High-Yield International is
a monthly investment newsletter focused on bringing subscribers the
highest-yield securities in the world. By focusing solely on those securities
trading outside of the United States, this newsletter offers a host of relatively
unknown investment options that you probably won't find coverage of anywhere
else.
Many of these securities provide investors with annual dividend yields of 10%,
15%, even 20% or more, while also outperforming the major U.S. averages.
About Nick Lanyi
Nick Lanyi has spent
17 years researching and analyzing money-making opportunities for three of the
most widely read investment advisory services in history. At Louis Rukeyser's
Wall Street, Nick spent the better part of a decade as Rukeyser's trusted
lieutenant, covering the entire investment waterfront. Earlier, Nick refined his
touch at Fidelity Insight, a leading mutual-fund newsletter, and
wrote for the venerable general-interest financial newsletter, Personal
Finance.
Nick has been quoted in the Wall Street Journal, Boston Globe,
Chicago Tribune, Bloomberg and Forbes.com. He has also appeared on CNN/fn
and CNBC.
To learn more about Nick Lanyi's premium investing newsletter --
High-Yield International -- please
visit
this link.
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