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After a 38% gain in this rally, Banco Bilbao Vizcaya looks expensive as risks rise in the EuroZone
03/13/2013 5:20 pm EST
But this remains a Spanish bank—it is the second largest Spanish bank—and Spain’s economy remains a black hole of rising bad loans and endless provisions for bad loans. And frankly I think risks are currently rising in Spain and the rest of the EuroZone rather than falling. EuroZone politicians are hoping that they can hold things together without significant action until after the German elections in September. That seems to me to be a questionable strategy given how quickly the political situation is decaying in Greece, Spain, Italy, and France.
There are reasons not to like Banco Bilbao Vizcaya in particular at the moment. The bank has been relatively slow—slower than Banco Santander (SAN), Spain’s largest bank, to write down its real estate loan portfolio. Non-performing loans rose for the bank as a whole in the fourth quarter by 2% from the third quarter, but the real damage was done in Spain where non-performing loans climbed to 6.9% from 6.5% in the third quarter.
But my decision to call this stock a sell here is really a call on the rising risks in the EuroZone after a very strong run up in the stock. The New York ADRs (American Depositary Receipts climbed 36.7% from the November 11 price of $7.66 to $10.56 on January 25. They’ve been bouncing around the $10 level for the last six weeks.
At $7.66 I’d say the ADRs are a bargain—you’re getting a very good global bank at a price that discounts much of the legitimate worry about Spain. At $10 or $10.56, I’d call these shares fully priced if you share my view that almost all EuroZone economies are in recession and that the political risks of another round in the Euro debt crisis are increasing. The shares do pay a 5.4% dividend yield, so you would get paid if you held through any volatility. But my choice would be to step out here and look to get back in at a price—and with a higher yield--that doesn’t assume that economic and political conditions are less troubling than they are.
Banco Bilbao Vizcaya is a member of my Jubak’s Picks portfolio http://jubakpicks.com/ . I will be selling the shares out of that portfolio tomorrow. As of the close on March 13 I have a 18% loss—not counting dividends—on this ADR since I added it to the portfolio on February 15, 2011.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Banco Bilbao Vizcaya as of the end of September. For a full list of the fund’s holdings as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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