If you’re an active trader, you know that sometimes the best opportunities are in stocks that you’ve just made money on. That’s exactly the case with Banco Santander (SAN), which we recently flipped for double-digit returns in less than two weeks in my Absolute Capital Return service. And now, less than a month later, I like the way it’s signaling the next run.
As you may know, Banco Santander is much more than a Spanish bank. It has operations across Europe, Latin America and the United States. While the company suffered for its role in feeding the Spanish mortgage bubble, I think the flow of liquidity into euro markets will more than paper over any immediate risk factors that may emerge.
The European operations routinely pass Brussels stress tests even if they raise eyebrows with U.S. regulators. And if neighboring markets falter, the group’s massive footprint in Latin American should be able to pick up the slack.
Banco Santander expanded its earnings close to 30% last year and is tracking to deliver another 22% over the next 12 months, with the bulk of the expected improvement clustered into the next few quarters. I find the growth ramp here especially interesting because the latest round of guidance was before Europe launched its own version of quantitative easing, which means that even management’s outlook is now a few months behind the curve.
Analysts have tried to keep up with liquidity flows, but they’ve only adjusted their models on a quarter-to-quarter basis. And on those terms, Banco Santander is in the best fundamental position since early 2012 – when it was comfortably trading above $8.50. Although the full-year numbers haven’t changed yet to reflect the increased near-term bullishness brewing here, I think it’s only a matter of time before those targets start climbing as well. And when that happens, traders will have to accept the fact that SAN is back on the global board in an environment where central banks will spend enormous sums that keep the wind blowing at its back.
Right now Banco Santander looks close to oversold with its relative strength index (RSI) below 40. As you can see from the chart, the stock has routinely rebounded 8%–10% from similar positions in a matter of days or a week. The exception was the especially deep dip in January, when it took SAN a full six weeks to rise a net 5%.
While it’s always possible that we are moving into January-like market conditions, I do not think Banco Santander is due a repeat of that experience. If nothing else, this is a European bank and we know that the continent’s financial institutions are now swimming in as much stimulus capital as they can swallow. For all practical purposes, this company has all the money it needs, which should make even the gloom we saw in January clear away relatively quickly.
Otherwise, the odds of a near-term bounce seem historically high. Implied support down around $6.80 probably won’t come into play here because, once again, those prices reflect the pre-quantitative-easing Europe. We’re in a new world now.
As it is, SAN is trading at a forward multiple of 11.2X anticipated earnings and pays the equivalent of a nearly 9% yield through quarterly dividends. Factor in anticipated organic growth and the stock would be attractive in just about any scenario.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network, and other media.
