Believe it or not, France exports much more than soft cheeses
and techno bands. Despite the worries about the stability of the
European banking system, French bank stocks offer some of the
best value I've stumbled on recently.
BNP Paribas (OTC: BNPZY)
has grabbed headlines thanks to a $9.8 billion fine related to
doing business with countries blacklisted by U.S. regulators, a
cleaner name has showed up on my radar...
Credit Agricole (
While it's true that I wrote an article titled "
Why I Will Never Buy Another Bank Stock
" a few months ago, the focus was on regional banks -- not global
giants. There's a big difference.
With assets of over $2 trillion, Credit Agricole comes in at
#9 among the world's largest banks -- but its ADRs (American
depositary receipts) have had a rough go of things over the past
After falling below $2 in the depths of the Greek-fueled
European debt crisis, CRARY has rebounded smartly, more than
tripling since mid-2012. But is it still worth buying?
Put simply, the stock has sufficient potential growth combined
with an extremely pessimistic value placed on it by a
shortsighted market -- one of my favorite textbook contrarian
To see what I mean, compare Credit Agricole with U.S. banking
JPMorgan Chase (NYSE:
Clearly, Credit Agricole is a much stronger buy based on
growth and value. But what's driving both?
For the first quarter of 2014, the company brought in a
staggering $4 billion in revenue, an 11% increase over a year
ago. Credit Agricole's corporate and investment banking business
accounted for nearly a third of that haul and grew at an
impressive 8.2% rate during the quarter.
But the concern that's putting pressure on the stock price is
coming from France's neighbor to the west: Portugal. A subsidiary
of one of the nation's largest banks,
Espirito Santo Financial Group (
, which has been on shaky capital ground since the European debt
crisis of 2011, missed a commercial payment.
Why is this significant? Besides reigniting concerns about the
eurozone's financial stability, Credit Agricole owns 14.6% of
Banco Espirito Santo. While this is a major concern, Portuguese
authorities, under the watchful eye of the European Central Bank,
have intervened and taken steps to try to prevent another
Greek-style banking crisis.
Regarding the eurozone's financial stability: The
International Monetary Fund (IMF) has predicted an anemic 1.1%
growth rate for European Union GDP. Owning shares of Credit
Agricole puts investors ahead of that curve with projected
high-teens earnings growth and 20%-plus revenue growth.
Risks to Consider:
Clearly, Credit Agricole's substantial stake in troubled
Banco Espirito Santo is an albatross. Credit Agricole is well
capitalized, but the primary concern with any European bank is
contagion and panic in the event of a full-blown financial
Action to Take -->
In my view, the market has mispriced Credit Agricole, creating an
excellent opportunity for contrarian/value-oriented investors.
Provided we see no further negative EU macroeconomic events, a
12- to 18-month price target of $9 makes sense. Factoring in the
dividend, that's a potential total return of nearly 40%.
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