Weekly Value Investing Ideas: Banco Santander and Hudson City Bancorp

Includes: HCBK, SAN
by: Ryan Edward

This is continuation of my weekly series that will include a few of my top investing ideas. I will only be including a short summary and analysis for each company, so make sure you complete your own due diligence.

International Exposure: Banco Santander (STD)

The philosophy surrounding this pick is simple: It’s one of the best run banks in the world. Might fall a bit further as the full impact of Spain's austerity measures is felt, however, the fundamentals behind the story are becoming hard to ignore. The big selling points to me are:

  • International exposure (Large Exposure to Europe and Emerging Markets)
  • Well capitalized (One of the only banks not forced into capital raising)
  • Strongest bank in Spain (issues in Spain could actually increase STD's market share as deposits and loans move to the most reputable banks)
  • Well diversified (Although they are receiving bad press for being a Spanish bank, their international assets are hardly being noticed or factored in)
  • Cheap based on earnings potential (Trading at under 10x earnings with around a 5% dividend yield)
  • On an acquisition spree (The bank has been buying up distressed assets left and right with their ample capital base)

Reliable Niche: Hudson City Bancorp (NASDAQ:HCBK)

It’s tough to determine which bank (STD or HCBK) has more complex dynamics affecting their businesses, but I don’t think that near-term industry headwinds should scare off prudent investors. Some points to consider include:

  • HCBK is a Northeast regional bank focusing on low-cost residential mortgage loans to prime, affluent buyers, and it has very strict underwriting standards
  • It did not receive TARP funds and has a proven, respected CEO
  • Senior executives and directors own more than $40,000,000 in common stock
  • Hudson has been growing EPS (~19%/yr) and raising its dividend (with a relatively low payout ratio of 55%) consistently each year for at least the last ten years.
  • A P/B of 1.14, making it not only historically cheap, but in line with its peers despite having some of the best performing assets in the industry.
  • A hefty, safe 4.5% dividend

Disclosure: I am long STD.