As we finish up our global search, I want to take a swing through Europe and take a look at some of the cheap financial stocks in that region. I have owned several of these since 2011 when the eurozone was a complete wreck and the central bank was under fire to do something, anything to revive the economy.
The European Central Bank has taken steps, lowered interest rates and finally thrown in the towel and started a quantitative easing bond buying program similar to what the Federal Reserve has been conducting for years. I think we will see similar results to what happened in the U.S. with little economic impact but a very pleasant inflation of financial assets for the European QE programs. I still own most of the financials I bought back then and, while they have performed pretty well, some of them are still cheap.
Netherlands-based Aegon (AEG) was one of the first European financial stocks I purchased and I suspect it may be the last one I ever sell. Aegon is one of the world's biggest life insurance pension and asset management companies. The company focuses on the U.S., U.K. and the Netherlands and has smaller operations in other nations around the globe. It is expanding into emerging markets, seeing enormous potential in an underinsured population and limited government insurance programs. Aegon has paid back the money the Dutch government put into the company during the credit crisis and has taken steps to increase capital levels. It may not be the most exciting company in the world, but insurance companies that can deliver steady growth can be spectacular performers over time in the stock market. The stock is trading at 60% of book value and the shares have a nice 3.77% dividend yield.
I still like Societe Generale (SCGLY), the France-based banking and financial services company. The bank was one of four French banks that Moody's mentioned as having "successfully made progress in reducing their reliance on wholesale funding and enhancing their liquidity reserves." These improvements should provide stronger balance sheets that help the bank weather economic and financial volatility going forward. CEO Frédéric Oudéa recently commented on his bank's performance, saying, "We had a very good start for the beginning of this year, the first quarter. All our businesses are growing with a very strong dynamism, from a commercial point of view. Revenues are up significantly." While he some concerns about the business in Russia and the ongoing drama that is Greece, Oudéa anticipates similar strong results for the rest of 2015. The stock is trading at 70% of book value and I think it will be one of the best-performing banks in Europe for the next five years and beyond.
German banking and financial services company Commerzbank AG (CRZBY) is a little riskier than some of my other eurozone financials, but I still own the stock and would not be opposed to buying some at this price. In the first quarter of the year, Commerzbank increased both revenues and profits on a year-over-year basis and also improved its capital ratios. All operating divisions showed improved results and CEO Martin Blessing told shareholders the bank is planning and reserving for a dividend payment in 2015. In spite of what he called challenging conditions as a result of very low interest rates, Blessing also said he expected to see continued revenue and profit growth from the core bank for the rest of the year. I like the stock at 60% of book value and would be buying it if I didn't already own shares.
There are several other European financial firms like Royal Bank of Scotland (RBS), Credit Agricole SA (CRARY) and XL Group PLC (XL) that I own and would be willing to buy more of if they were to pull back to 80% of book value or less. All three trade between 90% and 100% of book value, so they are just a bit too high for purchase right now. I have no intention of selling any of them any time soon, but I am not going to add until we see a pullback in European market.
When buying financial stocks in Europe, my best advice is stay small and move slow. In my opinion, the biggest geopolitical risk in the world right now is Russian President Vladimir Putin and the West's misunderstanding of his intentions in Eastern Europe. Should he accelerate his aggressive actions in the region, eurozone equity markets could become quite volatile and see a substantial pullback that offers an opportunity to add at much cheaper prices.