Deep Value in the Cradle of Democracy
The Stock
What to trade: National Bank of Greece (NYSE: NBG)–Buy < USD1.45.
Why Now: The EU’s bailout package for Greece should ensure that the embattled nation has ample time and liquidity to address the government’s ponderous debt burden. As the country’s fiscal situation stabilizes, shares of National Bank of Greece–the best-capitalized bank–should rally substantially.
The Story
After traveling throughout the Mediterranean for several weeks, Elliott meets Yiannis for dinner and drinks at one of the Grecian’s favorite haunts–Twenty-One, a trendy restaurant in the Athenian suburb of Kifissia.
Elliott: I can’t believe I head back to the states in a few days. Time moves faster in Europe.
Yiannis: I think I have just the solution. Do you know what I’m thinking about?
Elliott: Not even an inkling. But I feel confident that you’ll share your thoughts regardless of whether I care to hear them.
Yiannis: Lighten up, man. You’ll like this: Let’s take a quick trip to Mykonos before you head home. Beach time moves slower than regular time–it’s a scientific fact. If we grab an early flight tomorrow, we can be there at 7:30 am.
Elliott: A last-minute trip to Mykonos sounds perfect. After all, I haven’t been able to find a hotel room in Kifissia that can accommodate me for three days. I’d stay at hotel Twenty-One, but all 21 rooms are booked. For a bankrupt country, it sure is tough to find a hotel in this town.
Yiannis: This is a wealthier section of town, and Greeks…
Elliott: I didn’t hear much Greek at the breakfast buffet this morning. There were plenty of German businessmen, though. They’re probably checking up on the country they just bought. Looks like the mortadella and feta passed inspection; the Germans ate all of it before I could have any.
Yiannis: Whatever, man. Can you blame them for coming to Greece? Have you had German food? No wonder they wolfed down their breakfasts. I’ll book the flight to Mykonos. We can grab dinner at Interni and discuss the August issue of Cocktail Stocks.
Elliott: Works for me.
Twenty-two minutes after takeoff, Yiannis and Elliott step off the plane into the Mykonos sun. After checking to the Archipelagos, the two spend the day at Solymar beach before meeting at Interni for a late dinner.
Elliott: This place is amazing–great choice, man. The restaurant looks like a simple archway from outside, but when you walk in it opens up into this gigantic courtyard.
Yiannis: I always break out the best for foreign dignitaries.
Elliott: Save the wining and dining for the Germans and French–the US isn’t bailing out your country, even if Greek Prime Minister George Papandreou was born in St. Paul, Minn.
Yiannis: You are funny, man. But in all seriousness, it’s best to buy when there’s blood in the streets. Investors are uniformly bearish on Greek equities right now.
Elliott: Do I sense a stock pitch coming on?
Yiannis: Let me finish. Since the sovereign debt crisis began, I’ve argued that the EU would bend over backward to prevent the fiscal issues in Greece and other overly indebted nations from sinking the region’s economy or touching off another financial crisis. I still expect the EU to emerge from this crisis as a better-run fiscal and monetary union.
My prediction appears to be playing out. The latest bailout from the EU provides the Greek government with ample liquidity to address the fiscal and economic imbalances that have plagued the nation. This aid won’t materially improve the Greek government’s solvency, but the package is a step in the right direction.
Elliott: How far does this bailout kick the can down the road? Will Greece’s sovereign debt woes roil the markets yet again next summer?
Yiannis: I don’t think so. According to Prime Minister Papandreou, Greece’s government is now funded until 2020–a lot longer than the market had expected. But ongoing EU funding hinges on the Greek government meeting certain quarterly milestones. The big unknown is whether the government and populace will be able to make the structural changes necessary to put the Greek economy on the path to sustainability.
Elliott: The market definitely isn’t pricing in much good news from Greece. The US and British press continue to harp on negative developments and focus on the protests in central Athens. We’re not getting the full story. What stock would you suggest to play this deep-value story?
Yiannis: With USD160 billion worth of assets and a Tier-1 capital ratio of 12.9 percent, National Bank of Greece (NYSE: NBG) is the nation’s largest and best-capitalized financial institution. The bank controls about a quarter of the domestic market.
The bank has amassed huge stakes in some of the country’s most desirable real estate and is expected to sell many of these assets in the near future. The lender also holds stakes in other financial institutions, including a 7 percent interest in Hellenic Post Bank (Athens: TT), one of the nation’s biggest deposit holders.
Elliott: That’s well and good, but you didn’t mention the bank’s exposure to Greek sovereign debt? If the government takes a haircut, National Bank of Greece’s capital would evaporate.
Yiannis: You’re right. Bonds issued by the Greek government account for about 16 percent of National Bank of Greece’s total assets–a real risk. But the latest bailout package from the EU should limit any haircut to outstanding Greek debt in the near term. Meanwhile, the bank’s ample Tier-1 capital ratio and ability to raise cash through asset sales should enable it to weather the storm.
The waiter arrives and Yiannis puts in an order in rapid-fire Greek. He orders two fish, a platter of starters and a bottle of Champagne.
Elliott: What did I just order?
Yiannis: Don’t worry, man; I took care of it.
Elliott: Right. Let’s get back to the task at hand. Have you read through the National Bank of Greece’s quarterly earnings reports?
Yiannis: At the end of May, the company reported first-quarter earnings that beat analysts’ consensus expectations for net income by 44 percent. These trying times have prompted management to focus on reducing costs. In the first quarter alone, the firm slashed its Greek operating costs by 8 percent and its cost of doing business in Southeastern Europe by about 3 percent. Management has indicated that further cuts are in the cards.
Elliott: Sounds like the National Bank of Greece is better-run than the government.
Yiannis: Good one, man. Anyway, National Bank of Greece also offers exposure to the fast-growing Turkish economy through its majority stake in Finansbank (Istanbul: FINBN). In 2010 the Greek lender raised USD1.7 billion through a public offering of a minority stake in Finansbank. National Bank of Greece also netted about USD2.5 billion through a rights issue and an equity/convertible bonds issue.
Elliott: I like the story. National Bank of Greece’s American depositary share trades at USD1.25; if sentiment toward the EU and Greek economies improves even slightly, this puppy could easily breach $2. That being said, the stock is definitely the most speculative play we’ve considered for Cocktail Stocks.
Yiannis: Yeah, you definitely don’t want to bet the farm on this one, but the payoff could be huge if the story pans out. Do you have any other ideas?
Elliott: I’ve been mulling over something that the bartender at Solymar said to me when I asked him how business was this summer. As he opened a bottle of Moet et Chandon, the bartender told me, “Greece very bad; Mykonos very good.”
Yiannis: Ha! A Greek aphorism for our day.
Elliott: In Greece, the headlines all focus on the weak economy, protests over fiscal austerity measures, the cost of their electricity bills and the fact that the government no longer guarantees them a free Jacuzzi when they turn 45. But people are still spending money. I watched the bartender at Solymar for 15 minutes and watched him pop 11 bottles of champagne for people on the beach. That’s EUR80 a pop. It’s 11 pm and the restaurant is packed with diners–and these people aren’t exactly ordering the extra-value meal.
There’s a similar dichotomy in the US. The unemployment rate for people with a college degree is about 4.5 percent–less than half of the overall jobless rate. Higher-income consumers have positive income growth and face better employment prospects than the average citizen. The legitimately well-to-do also lack the crippling debt burdens of their less-well-off peers. The wealthy continue to go on vacation and shop at Gucci, Armani and Tiffany’s.
I don’t deny that high unemployment is a problem. But there are pockets of strength that investors often overlook.
Yiannis: Well, this restaurant isn’t publicly traded, so you must have a high-end retailed in mind.
Elliott: Spot on, my friend. Tiffany & Co. (NYSE: TIF), posted stellar first-quarter earnings and managed to grow its profit margins, largely because of prices increases on its premium products.
Yiannis: I like the story and the company’s growth prospects in China. But the stock is expensive.
Elliott: We don’t have to make a decision tonight. Let’s think it over and make a decision when I get back to the states.
Two weeks later, Elliott calls Yiannis to finalize the August issue of Cocktail Stocks.
Yiannis: Greetings.
Elliott: Where are you, man? I hear music.
Yiannis: I’m back at Solymar in Mykonos. Did the US authorities give you any trouble about your visit to Beirut?
Elliott: No problems. They asked me about my trip, but it didn’t warrant a visit to the “special white room.”
Yiannis: Glad to hear it. Let me grab a drink before we talk about Cocktail Stocks–I need to get in the proper spirit.
Elliott: Let’s go with the National Bank of Greece as a buy under USD1.45. I still like Tiffany & Co., but the stock might not move fast enough for Cocktail Stocks. And despite all the negativity toward Greece, the National Bank of Greece’s American depositary receipt has traded sideways, which suggests that the selling pressure has abated. Once sentiment improves, the stock could really take off.
Yiannis: Speaking of taking off–I’m out of here. Cheers to Greece.
Elliott: It’s 10 am here, man. Even I don’t start that early–well, at least not on a Monday.
Past Picks
August 2010: Vale (NYSE: VALE)–Buy < 36
September 2010: Teekay Tankers (NYSE: TNK)–Buy < 13.50
November 2010: True Blue (NYSE: TBI)–Buy < 17
February 2011: ProShares UltraShort 20+ Year Treasury (NYSE: TBT)–Buy < 42
May 2011: TAL International (NYSE: TAL)–Buy < 40
June 2011: iShares MSCI Italy Index (NYSE: EWI)–Buy < 20
July 2011: TransGlobe Energy Corp (NSDQ: TGA)–Buy < USD13.50
July 2011: Market Vectors Gulf States Index (NYSE: MES)–Buy < 23.50
What to trade: National Bank of Greece (NYSE: NBG)–Buy < USD1.45.
Why Now: The EU’s bailout package for Greece should ensure that the embattled nation has ample time and liquidity to address the government’s ponderous debt burden. As the country’s fiscal situation stabilizes, shares of National Bank of Greece–the best-capitalized bank–should rally substantially.
The Story
After traveling throughout the Mediterranean for several weeks, Elliott meets Yiannis for dinner and drinks at one of the Grecian’s favorite haunts–Twenty-One, a trendy restaurant in the Athenian suburb of Kifissia.
Elliott: I can’t believe I head back to the states in a few days. Time moves faster in Europe.
Yiannis: I think I have just the solution. Do you know what I’m thinking about?
Elliott: Not even an inkling. But I feel confident that you’ll share your thoughts regardless of whether I care to hear them.
Yiannis: Lighten up, man. You’ll like this: Let’s take a quick trip to Mykonos before you head home. Beach time moves slower than regular time–it’s a scientific fact. If we grab an early flight tomorrow, we can be there at 7:30 am.
Elliott: A last-minute trip to Mykonos sounds perfect. After all, I haven’t been able to find a hotel room in Kifissia that can accommodate me for three days. I’d stay at hotel Twenty-One, but all 21 rooms are booked. For a bankrupt country, it sure is tough to find a hotel in this town.
Yiannis: This is a wealthier section of town, and Greeks…
Elliott: I didn’t hear much Greek at the breakfast buffet this morning. There were plenty of German businessmen, though. They’re probably checking up on the country they just bought. Looks like the mortadella and feta passed inspection; the Germans ate all of it before I could have any.
Yiannis: Whatever, man. Can you blame them for coming to Greece? Have you had German food? No wonder they wolfed down their breakfasts. I’ll book the flight to Mykonos. We can grab dinner at Interni and discuss the August issue of Cocktail Stocks.
Elliott: Works for me.
Twenty-two minutes after takeoff, Yiannis and Elliott step off the plane into the Mykonos sun. After checking to the Archipelagos, the two spend the day at Solymar beach before meeting at Interni for a late dinner.
Elliott: This place is amazing–great choice, man. The restaurant looks like a simple archway from outside, but when you walk in it opens up into this gigantic courtyard.
Yiannis: I always break out the best for foreign dignitaries.
Elliott: Save the wining and dining for the Germans and French–the US isn’t bailing out your country, even if Greek Prime Minister George Papandreou was born in St. Paul, Minn.
Yiannis: You are funny, man. But in all seriousness, it’s best to buy when there’s blood in the streets. Investors are uniformly bearish on Greek equities right now.
Elliott: Do I sense a stock pitch coming on?
Yiannis: Let me finish. Since the sovereign debt crisis began, I’ve argued that the EU would bend over backward to prevent the fiscal issues in Greece and other overly indebted nations from sinking the region’s economy or touching off another financial crisis. I still expect the EU to emerge from this crisis as a better-run fiscal and monetary union.
My prediction appears to be playing out. The latest bailout from the EU provides the Greek government with ample liquidity to address the fiscal and economic imbalances that have plagued the nation. This aid won’t materially improve the Greek government’s solvency, but the package is a step in the right direction.
Elliott: How far does this bailout kick the can down the road? Will Greece’s sovereign debt woes roil the markets yet again next summer?
Yiannis: I don’t think so. According to Prime Minister Papandreou, Greece’s government is now funded until 2020–a lot longer than the market had expected. But ongoing EU funding hinges on the Greek government meeting certain quarterly milestones. The big unknown is whether the government and populace will be able to make the structural changes necessary to put the Greek economy on the path to sustainability.
Elliott: The market definitely isn’t pricing in much good news from Greece. The US and British press continue to harp on negative developments and focus on the protests in central Athens. We’re not getting the full story. What stock would you suggest to play this deep-value story?
Yiannis: With USD160 billion worth of assets and a Tier-1 capital ratio of 12.9 percent, National Bank of Greece (NYSE: NBG) is the nation’s largest and best-capitalized financial institution. The bank controls about a quarter of the domestic market.
The bank has amassed huge stakes in some of the country’s most desirable real estate and is expected to sell many of these assets in the near future. The lender also holds stakes in other financial institutions, including a 7 percent interest in Hellenic Post Bank (Athens: TT), one of the nation’s biggest deposit holders.
Elliott: That’s well and good, but you didn’t mention the bank’s exposure to Greek sovereign debt? If the government takes a haircut, National Bank of Greece’s capital would evaporate.
Yiannis: You’re right. Bonds issued by the Greek government account for about 16 percent of National Bank of Greece’s total assets–a real risk. But the latest bailout package from the EU should limit any haircut to outstanding Greek debt in the near term. Meanwhile, the bank’s ample Tier-1 capital ratio and ability to raise cash through asset sales should enable it to weather the storm.
The waiter arrives and Yiannis puts in an order in rapid-fire Greek. He orders two fish, a platter of starters and a bottle of Champagne.
Elliott: What did I just order?
Yiannis: Don’t worry, man; I took care of it.
Elliott: Right. Let’s get back to the task at hand. Have you read through the National Bank of Greece’s quarterly earnings reports?
Yiannis: At the end of May, the company reported first-quarter earnings that beat analysts’ consensus expectations for net income by 44 percent. These trying times have prompted management to focus on reducing costs. In the first quarter alone, the firm slashed its Greek operating costs by 8 percent and its cost of doing business in Southeastern Europe by about 3 percent. Management has indicated that further cuts are in the cards.
Elliott: Sounds like the National Bank of Greece is better-run than the government.
Yiannis: Good one, man. Anyway, National Bank of Greece also offers exposure to the fast-growing Turkish economy through its majority stake in Finansbank (Istanbul: FINBN). In 2010 the Greek lender raised USD1.7 billion through a public offering of a minority stake in Finansbank. National Bank of Greece also netted about USD2.5 billion through a rights issue and an equity/convertible bonds issue.
Elliott: I like the story. National Bank of Greece’s American depositary share trades at USD1.25; if sentiment toward the EU and Greek economies improves even slightly, this puppy could easily breach $2. That being said, the stock is definitely the most speculative play we’ve considered for Cocktail Stocks.
Yiannis: Yeah, you definitely don’t want to bet the farm on this one, but the payoff could be huge if the story pans out. Do you have any other ideas?
Elliott: I’ve been mulling over something that the bartender at Solymar said to me when I asked him how business was this summer. As he opened a bottle of Moet et Chandon, the bartender told me, “Greece very bad; Mykonos very good.”
Yiannis: Ha! A Greek aphorism for our day.
Elliott: In Greece, the headlines all focus on the weak economy, protests over fiscal austerity measures, the cost of their electricity bills and the fact that the government no longer guarantees them a free Jacuzzi when they turn 45. But people are still spending money. I watched the bartender at Solymar for 15 minutes and watched him pop 11 bottles of champagne for people on the beach. That’s EUR80 a pop. It’s 11 pm and the restaurant is packed with diners–and these people aren’t exactly ordering the extra-value meal.
There’s a similar dichotomy in the US. The unemployment rate for people with a college degree is about 4.5 percent–less than half of the overall jobless rate. Higher-income consumers have positive income growth and face better employment prospects than the average citizen. The legitimately well-to-do also lack the crippling debt burdens of their less-well-off peers. The wealthy continue to go on vacation and shop at Gucci, Armani and Tiffany’s.
I don’t deny that high unemployment is a problem. But there are pockets of strength that investors often overlook.
Yiannis: Well, this restaurant isn’t publicly traded, so you must have a high-end retailed in mind.
Elliott: Spot on, my friend. Tiffany & Co. (NYSE: TIF), posted stellar first-quarter earnings and managed to grow its profit margins, largely because of prices increases on its premium products.
Yiannis: I like the story and the company’s growth prospects in China. But the stock is expensive.
Elliott: We don’t have to make a decision tonight. Let’s think it over and make a decision when I get back to the states.
Two weeks later, Elliott calls Yiannis to finalize the August issue of Cocktail Stocks.
Yiannis: Greetings.
Elliott: Where are you, man? I hear music.
Yiannis: I’m back at Solymar in Mykonos. Did the US authorities give you any trouble about your visit to Beirut?
Elliott: No problems. They asked me about my trip, but it didn’t warrant a visit to the “special white room.”
Yiannis: Glad to hear it. Let me grab a drink before we talk about Cocktail Stocks–I need to get in the proper spirit.
Elliott: Let’s go with the National Bank of Greece as a buy under USD1.45. I still like Tiffany & Co., but the stock might not move fast enough for Cocktail Stocks. And despite all the negativity toward Greece, the National Bank of Greece’s American depositary receipt has traded sideways, which suggests that the selling pressure has abated. Once sentiment improves, the stock could really take off.
Yiannis: Speaking of taking off–I’m out of here. Cheers to Greece.
Elliott: It’s 10 am here, man. Even I don’t start that early–well, at least not on a Monday.
Past Picks
August 2010: Vale (NYSE: VALE)–Buy < 36
September 2010: Teekay Tankers (NYSE: TNK)–Buy < 13.50
November 2010: True Blue (NYSE: TBI)–Buy < 17
February 2011: ProShares UltraShort 20+ Year Treasury (NYSE: TBT)–Buy < 42
May 2011: TAL International (NYSE: TAL)–Buy < 40
June 2011: iShares MSCI Italy Index (NYSE: EWI)–Buy < 20
July 2011: TransGlobe Energy Corp (NSDQ: TGA)–Buy < USD13.50
July 2011: Market Vectors Gulf States Index (NYSE: MES)–Buy < 23.50
Stock Talk
Add New Comments
You must be logged in to post to Stock Talk OR create an account