5 Foreign Banks Worth Considering

I am on a search to find a financial stock. With reports that Bank of America (NYSE: BAC) is considering cutting as many as 40,000 jobs, I want to find other options in the financial sector. Luckily for me, many different banks offer great opportunities for individual investors like us. Previously, I looked at smaller banks in the United States.

Today, I decided to leave the friendly borders of the United States to find some banks abroad. I am wary of the looming crisis in Europe, and have modified my criteria slightly. Many of these banks have a presence beyond their home countries, including ownership of American banks. I looked for three different criteria when screening foreign banks: price-to-book ratio under 1.0, price-to-earnings under 15, and a dividend yield over 4%.

Data from Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.

Why price-to-book?
Investors can use the price-to-book ratio to estimate a bank's valuation. This ratio compares the price of a company's shares to the per-share value of its equity -- i.e., book value. In the banking industry, a P/B ratio of 1.5 is a reasonable number. A ratio of one means the bank is worth the value of its equity, giving no credit for any kind of franchise value. A company with a P/B under 1.0 is selling below its theoretical liquidation value. However, as the value approaches zero, it may indicate a company in distress.

All five of the banks listed here fall well below the 1.5 benchmark, and all trade below book value. As a rule of thumb, if you can "buy at half and sell at two," you will be successful more often than not. That is what makes Banco Santander an appealing option.

Profitability is important
I would like my selection to be profitable, and luckily all the banks that met my screening criteria are.

The "cheapest" stock based on P/E of my five choices above is Banco Bilbao Vizcaya Argentaria, or BBVA. It is the second-largest bank in Spain, behind Banco Santander. It expanded into the United States with the purchase of Compass Bancshares in 2007, creating BBVA Compass. Compass operates more than 700 branches in seven U.S. states and ranks among the 20 largest commercial banks.

Dividends make me happy
As my Foolish colleague John Maxfield kindly points out, dividend stocks are back in vogue. Treasury yields are at all-time lows, making a portfolio full of dividend payers extremely competitive.

As you can see in the chart above, Banco Santander comes out on top of the heap with an impressive yield above 10%. It also has the second-lowest P/E in the chart.

Banco Santander is the largest bank in the eurozone and has a large presence in the Northeastern United States thanks to its ownership of Sovereign Bank. Sovereign offers more than 750 branches and 2,300 ATMs from Maine to Maryland.

Small banks can be good, too!
Other Fools are pointing to great values in some of the larger banks, and I couldn't agree more. There are also some good values overseas, as well as some banks with a strong U.S. presence. I'm wary of foreign banks given a possible Greek default, so I'll be keeping an eye on that developing situation and avoiding banks with too much exposure. That said, I'll be keeping my eye on Banco Santander, primarily because of its large dividend and comparable P/E ratio to some other foreign banks. I'll be adding all five stocks to My Watchlist. I encourage you to do the same.