Investing in Troubled Countries

Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Most of Europe is a mess. The risks associated with investing in companies hailing from the “old world” are high. However, there could also be material profits to be made for those with strong stomachs. A few higher risk ideas for investing in the troubled region are the National Bank of Greece (NYSE: NBG) and Banco Santander (NYSE: SAN), while some lower risk options include ENI Spa (NYSE: E) and Total SA (NYSE: TOT).

A Greek Bank?
There is no question that the European Union is in trouble. The main problem was that the common currency allowed some nations to take on relatively cheap debt and, thus, spend more freely than their economies could otherwise support. The high credit ratings of nations like Germany provided the cover that weaker euro participants like Greece and Spain, that lacked their own notable growth engines, to support economies with too much debt.

The financial meltdown led by the United States’ 2007-2009 recession helped put an end to that game. Now, with the chickens having come home to roost, nations throughout the euro zone are reeling. The one nation that is probably the highest profile blow up is Greece. While there is no doubt that most investors should probably avoid this weak country, there could be some high-stakes money to be had for those with very high tolerance for risk.

Since it was the banking industry that helped drag the euro down, a good place to start would be with the National Bank of Greece. Trading below two dollars a share, this isn't as much of an investment as it is a gamble on the bank and its home market remaining solvent. If that happens, the bank's shares will likely rebound. Maybe not to the $60 a share that they traded at in 2008, but certainly much higher than $2.

And A Spanish Bank
Another name that comes to mind is Banco Santander, the largest bank in Spain. Spain is much larger than Greece and far more important to the euro currency. While there may be serious consideration of letting Greece drop from the currency, it would be much harder to let Spain falter. Thus, despite the current hardships Santander is feeling, there is a good chance the company will survive.

Indeed, the bank recently announced that it was consolidating the operations of two subsidiaries. While this won't necessarily move the needle on a turnaround, it will help to simplify the bank's structure and ease the process of solving Spain's bigger problems by reducing the players involved. The move comes at a financial cost to Santander, but the market seems to like the deal. An additional benefit for investors should be a reduction in costs.

With a large position in an important country, Santander is a less aggressive euro bank bet than Bank of Greece, but still one that takes a strong stomach to own.

Big Oil
For those who would like to take advantage of this severe market dislocation, but are afraid to get in bed with a bank in a financially troubled country, a good option would be a multinational oil giant. There are two such options that stand out, both offering decent yields.

Hailing from France, Total also has a great deal of exposure to financially struggling countries, but it is financially strong and should be able to weather any problems that come from Europe's woes. The company has been investing heavily in an effort to find new reserves and is a heavyweight in the chemicals industry. It also has a notable position in the liquified natural gas space, which appears likely to increase in importance over the long term.

Italian oil giant ENI is another major player. Hailing from Italy gives it a proximity benefit to major oil producing regions. Management has worked hard to foster these relationships in an effort to ensure access to areas that bedevil others. For example, ENI is one of the biggest players in Africa. There are, however, legitimate management concerns here. The Italian government has a large stake in the company that appears to have led to ENI supporting laggard operations that other companies would probably have jettisoned long ago. Still, it is a financially strong player with important connections that has seen its shares hit by the region's economic malaise.

Both of these multinational energy giants boast notable dividend yields and could offer the bottom fisher a safer, though not risk free, way to invest in the troubled Euro Zone.


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ReubenGBrewer has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Total SA. (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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