ING Groep NV (ING)

This is in the Netherlands and Belgium. A pure retail bank which emerged out of the financial crisis in pristine shape. Generating double digit earnings growth. It’s over capitalized in the environment we are in, implying big dividend growth going forward. Selling at maybe 12X earnings. Safe, cheap and a huge beneficiary of a slowly improving European environment. Dividend yield of 4.1%. (Analysts’ price target is $21.60.)

Sell ING or European telcos? The 1^st question would be which telcos. However, the broader story on European telcos is different than what is happening in Canada or the US. Fibre to the home is being built out in Europe, and for the 1^st time in about 12 years, European telcos are growing revenues and earnings. Thinks there is still a little upside in the telcos. Regarding financials in Europe, the big driver is going to be higher rates. Higher rates are going to be good for financials, so there is a little more room to run on ING. The balance sheet was freshly recapitalized. They sold off some assets. There is probably upside here as well.

ING (ING-N) or LLOYDS (LYG-N)?Lloyds is predominantly a retail bank in the UK, and this is predominantly a retail bank in the Netherlands. They had to sell off a lot of businesses. This is probably the stock to own over the next little while. They've taken a lot of costs out, and should see a growth in earnings.

(A Past Top Pick Sep 14/16, Up 59%) There is still lots of room here. This is best of breed. The strength of the US$ helped boost the return on the ADR. They were the first one to cut costs and to pay the Dutch government back.

He is sticking with this one. It is a great company in a sector that has not moved much yet. There is so much potential when Europe starts to deregulate and when they start to raise interest rates. There is so much money to be made in the banking sector. It is one of the best EU banks. (Analysts’ target: $22.00).

(A Top Pick Nov 24/16. Up 40%.) This is in the Netherlands and Belgium. A pure retail bank. 4% dividend yield. Earnings growth of 8%-10%. Selling about 12X earnings. Extremely stable and benefiting from the rebound in Europe. Very cheap.

This has had some near-death experiences and the business has shrunk fairly dramatically. They have restructured and are much smaller than they were. A bit of a turnaround story and higher interest rates will work. Feels there are better opportunities elsewhere.

He likes the international markets. They are benefiting from Euro zone upturn in growth. They sold off their insurance business to focus just on banking. (Analysts’ target: $21.90).

Lloyds Bank (LYG-N) or ING Groep (ING-N)? Both did very well coming out of the chute from when they were partially nationalized by the British government. Lloyds is probably a little more expensive. This is much more of a retail bank, and if run properly retail can easily be a 15% return.

He really likes this and thinks it could be one of the best European banks. They have the ability to spread across Europe without having a lot of bricks and mortar. They are very aggressive. They paid back the money they owed to the Dutch government. They pay a special dividend a couple of times a year. 4.25% dividend yield.

It hit his radar during the recession. It has moved up too far to be of interest now, although it could have a lot of upside. It is no longer on his radar.

Lloyds (LYG-N) or ING (ING-N)? He would favour this over Lloyds. In the UK, Lloyds has had a big restructuring coming out of the financial crisis, and clearly that is now behind it. The problem is the political and economic uncertainty background in the UK. ING is a terrific business and is a very, very inexpensive stock. Thinks interest rates in Europe are set to go up, which should put the wind at the back of this bank.

A good, well managed bank with good capital ratios. But it is not a pan-European bank. A better way to play that would be BMP, a French bank with exposure to the entire continent. He does not own either because there is not enough growth opportunity. He prefers Spanish banks because unemployment is coming down and their exposure to emerging markets is good.

It is a well run bank, but does not have the huge upside it had before.

Compared to other European banks, he would consider this as average. Dividend yield of 4.5%, which probably attracts a number of people. However, ROE is only 9.5%, and they are still highly leveraged. If you own, continue to hold, but look for prices in order to Buy more.