by Charles Sizemore | November 11, 2013 9:28 am
Microsoft (MSFT) founder Bill Gates made news last month when it was announced that he had made a $155 million investment in Spanish construction company Fomento de Construcciones y Contratas SA (FMOCY), taking a 6% stake.
Now, $155 million is a relatively modest sum of money for Bill Gates — Forbes calculates his net worth at $72 billion. Still, a move like this gets your attention. If the world’s wealthiest man (Gates recently re-took that title from Mexico’s Carlos Slim) sees value in a beaten-down market, it’s probably worth exploring.
And Gates isn’t alone. American private equity firm Apollo Global Management (APO) recently made a large purchase in the Spanish banking sector.
I’ve been bullish on Spain for a long time, now. I saw a market full of world-class companies with excellent exposure to emerging markets that happened to be deeply depressed due to Spain’s recession.
And my position here hasn’t changed; even after the recent rally of nearly 40%, the iShares MSCI Spain ETF (EWP) sits at barely half its 2007 high. And Spain’s market has one of the lowest earnings multiples, at 14, and highest dividend yields, at 3.9%, of any developed market.
Spanish stocks have been drifting downward for the past three weeks. This is normal, healthy correction, and should be expected. But it’s also a great opportunity to accumulate new shares of your favorite Spanish stocks.
My recommendation? Buy the entire index. I recommend buying shares of EWP. Plan to hold for 6-12 months or for gains of 20-30%. Use a 15% trailing stop.
Spanish stocks are cheap, and investors are only now starting to warm up to them again. I believe the bull market is just getting started. But we should remember, this is Europe, a continent in crisis, and risk management is important.
And on a final note, we just got a major shot in the arm from ECB President “Super Mario” Draghi. Draghi cut the benchmark rate to just 0.25% and made it clear that “Our monetary-policy stance will remain accommodative for as long as necessary.” Tapering may be the word de jour on this side of the Atlantic, but it looks like European stocks will get to enjoy monetary stimulus for the foreseeable future.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. At time of writing he was long MSFT and EWP. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar, but also which stocks will deliver the highest returns. This series starts Nov. 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.
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