ING Groep: Banking on Europe

03/29/2017 2:50 am EST

Focus: GLOBAL

Yiannis Mostrous

Editor, The Capitalist Times

European equities trade at deep discount to those of the US. And almost all metrics indicate that the macro picture is much better than at any time in the past two years -– political uncertainty notwithstanding, asserts global expert Yiannis Mostrous in Capitalist Times.

Note that fiscal policy remains accommodative in the eurozone, as well­­­ — yet another positive for stocks. Financial stocks are the best way to profit from the eurozone’s potential upside.

European banks, in particular, are currently experiencing positive earnings and dividend momentum. This latter dynamic is the strongest it’s been in eight years.

The ECB should make its first rate hike sometime next year. This increase will be the final catalyst for better bank earnings and commence a new cycle of higher earnings expectations by the market.

European bank shares still trade at reasonable valuations of 1.1 times price to tangible book value, which is still a discount to the market.

Among individual financial stocks, Holland’s ING Groep (ING) — which we first recommended in September 2013 — remains a favorite and has generated a total return of 14 percent.

Initially, it served as a turnaround play in eurozone financials. Since then, it’s produced a total return of around 47 percent in dollar terms. And there’s more upside left.

As a reminder, ING has almost finished the restructuring and divesting program it started in 2009. The most significant part of the restructuring involved the divestment of its insurance business and distribution of that value to shareholders.

The company is now closer than ever to being a straight-up bank again through both global commercial banking and European retail banking operations.

As the company sheds its financial conglomerate past and becomes a more straightforward investment story, management’s execution will b even more effective.

ING remains an interesting capital return story, and the stock should continue to be a smart choice for the next couple years.

It also boasts a solid capital position and a well-diversified retail and commercial banking franchise in key European markets. ING Groep’s American Depositary Receipt, which yields around 5 percent, rates a buy up to $16.

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