Revisiting The #1 Pick In The “New Europe”

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

The combination of Europe’s surprisingly strong economic growth, the tailwind of the appreciating Euro, and the relative stability of European markets, has meant that Europe has been both the safest and most lucrative region to have your money so far in 2007. And, there is no better place to be within Europe than in fast-growth "New Europe," some of whose smaller economies are hitting China-like double-digit percentage growth rates. So it is with that in mind that this week’s Global Bull Market Alert revisits my #1 favorite play on the "New Europe" — the National Bank of Greece S.A. (ticker: NBG).

One of the stodgiest big banks in Greece during the past decade, NBG has transformed itself into a nimble regional financial giant that now rakes in more than a billion dollars a year. In 2006, its net profits soared 36% to Euro 990 million ($1.3 billion) on total revenue of Euro 2.8 billion ($3.7 billion). Net interest margin reached a record high of 3.76% at the end of the last quarter of 2006 — up from 3.16% for the full year of 2005. And finally, NBG also is becoming more efficient. Its all-important cost to income ratio was down from 53.3% to 50.7%.

And with 60% of its head count expected to be outside of Greece within three years, "National Bank of Greece" is rapidly becoming a misnomer. Last year, NBG opened 95 new branches in neighboring countries and the bank now totals 352 branches spread across Romania, Bulgaria, Serbia and Albania. By 2009, NBG expects its current network of 1,400 branches to have grown by more than 40%. In just two years, NBG’s Greek operations will contribute only about 55% of profit and 57% of revenues to the overall group — down from 80% currently. Turkey will account for another 30% and southeastern Europe will chip in 13% of group profit and revenues.

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Although NBG is primarily a growth story, it’s also one of the best value plays around. Citigroup’s estimates of 45% earnings-per-share growth puts the stock on a forward P/E of 10.75. And with senior management expecting NBG’s net profits to grow at an average of 30% per year between 2007 and 2009, NBG’s Price Earnings to Growth (PEG) ratio is a lowly 0.62. Anything below 1 is a screaming buy.

So buy National Bank of Greece (NBG) at market today and place your initial stop at $10.25. There are no options on this one.

PORTFOLIO UPDATE

All but one of our Global Bull Market Alert positions are now showing a profit and all positions remain buys at these levels. And the portfolio is well-positioned across some of the best-performing regions and sectors in the world: Europe (ICLR, AZ, and now NBG); commodities/natural resources (PKX, RIO); and mobile telecommunications (MICC, NIHD). Only our defensive currency play — the bet on the undervalued Japanese yen (FXY) and hedge against a sharp downturn in the markets — is slightly negative.

Last week’s recommendation, Brazilian mining giant CVRD (RIO) added a solid 2.89% in its first week. The options are already up 22%.

Korean steelmaker and Warren Buffett-favorite Posco (PKX) posted a better-than-expected 38% increase in first-quarter net profit. Sales climbed 22%, while operating profit jumped 41%. Posco also raised its 2007 targets for both sales and profits. Investment bank Credit Suisse expects more good news and predicts that cost-cutting efforts and price increases in steel will boost Posco’s second-quarter earnings beyond original estimates.

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Latin American telecom play NII Holdings (NIHD) is attracting customers at a faster rate than expected and will report Q1 results on April 26th. Several analysts have put a target price of $100 on the stock — a solid 25% upside from last week’s closing price.

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Global markets took a breather this past week, with earnings season set to begin. But it was a good week for India's ICICI Bank (IBN), which recovered 6.5% since last Monday. The Swedish ETF (EWD) also was up almost 3% this past week. Since our initial recommendations, Sweden (EWD) rose 9.55%, the U.K.'s Tesco (TSCDY) climbed 5.04%, and Latin American cell phone company America Movil (AMX) jumped 4.42%. All of our recommendations remain buys at these levels.

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