Banking on Greece—Really
03/16/2010 1:00 pm EST
Nicholas Vardy, editor of Global Bull Market Alert, says Greece isn’t going bankrupt, and a major Greek bank offers significant potential for risk-tolerant investors.
This week's Global Bull Market Alert pick revisits the National Bank of Greece (NYSE: NBG), a stock that I recommended just over a month ago.
The fundamental investment thesis behind owning NBG remains intact. And here's why I continue to believe that the substantial upside potential in NBG justifies the risk.
Greece's present deficit of 12.7% of the GDP is virtually identical to that of the United States last year. But unlike the US, the Greek government has launched a program to reduce its deficit to 9.1% of GDP by the end of this year and 3% by 2012. Contrast that with the Obama administration's $3.8-trillion budget for fiscal year 2011, which predicts a $1.6-trillion deficit, representing a deficit of more than 10% of GDP in 2009. By this measure, the US is a bigger economic basket case than Greece.
After much metaphorical handwringing, the Greek parliament [recently] approved its third austerity program in three months—a €4.8-billion ($6.5-billion) package aimed at slashing the budget deficit and rebuilding Greece's credibility with international financial markets. Equivalent to 2% of gross domestic product, the program includes unprecedented cuts in civil servants' allowances and bonuses, a pension freeze, and increases in indirect taxes.
Market consensus is that this latest package finally hit the nail on the head and that it will be enough to reduce Greece's deficit from 12.7% to 8.7% of GDP this year. As a sign of investors' confidence, Greece successfully raised €5 billion from the capital markets one day after the new measures were announced. The offering was three times oversubscribed. This bond issue marks a turning point for Greece as it prepares to raise another €20 billion over the next two months to refinance its expiring debt.
The result? [A couple of weeks ago,] the Athens General Index closed 8.8% higher, its largest weekly gain since October 2008. Meanwhile, data showing a smaller-than-expected cut in US jobs also helped European indices achieve their best week for eight months. The bottom line? Sentiment has turned, and it’s time to get back on board the train before it leaves the station.
So buy the NBG at market today and place your stop at $3.50. (Its ADSs closed above $4.30 Monday—Editor.)
I want to emphasize that this is a highly speculative pick, so you might want to start off with a smaller position than usual. It will also be very volatile, both on the up and down side.
That said, since I believe it is highly unlikely that Greece “will go bankrupt,” this is a position I would be willing to recommend as a long-term Buy and Hold candidate as well.
Full disclosure: This is a position that I hold on behalf of my clients at Global Guru Capital.Subscribe to the Global Bull Market Alert here…