Spain's economy has been crushed lately. It officially dipped back into recession, sports an unemployment rate of 23.6%, and has a debt-to-GDP ratio that will rise to nearly 80% by the end of the year, up from 68.5% a year ago. To add insult to injury, its central government recently announced the largest fiscal consolidation in history, pledging to slash government spending by 27 billion euros.
Spanish equities have responded in kind. Its benchmark index, the IBEX 35, is down more than 12% since the beginning of the year alone. To provide a point of reference, the S&P 500 had its best first quarter since 1998, up more than 11%. It's for this reason that I've highlighted four Spanish stocks to add to My Watchlist, our free stock-tracking service here at The Motley Fool. As all value investors know, crisis breeds opportunity.
1. Banco Bilbao Vizcaya Argentaria
Banco Bilbao Vizcaya Argentaria's history spans more than 150 years. Today it's Spain's second-largest financial institution and one of the largest and most widespread in the world, with retail operations in Europe, the Americas, and Asia. About 30% of its profits come from Spain. Another 30% comes from Mexico, while Eurasia and South America contribute 15% and 20%, respectively.
That geographic diversification definitely provides value to Banco Bilbao. But as Morningstar notes, the company is still "quite entrenched in its home country" and far from invulnerable to Spain's problems. Still, if the bank can survive the current crisis, its long-term picture has plenty of upside.
The European lender has a market cap of $35.4 billion, pays an 8.8% dividend yield, and trades for 72% of book value.
2. Grupo Prisa SA
Grupo Prisa is a Spanish media conglomerate founded in 1972 by Jesus de Polanco, one of the world's richest people at the time of his death in 2007. The company is divided into four business areas: education and publishing, press, radio, and television. Through these channels, it has a presence in 22 countries and reaches more than 52 million people. Shares in the media conglomerate are down 35% for the year and are currently trading for 4.8 times forward earnings.
3. Banco Santander
Like Banco Bilbao Vizcaya Argentaria, Banco Santander traces its roots back over a century and a half to a trade bank in its namesake Spanish town, Santander. It's now the eurozone's biggest bank and one of the planet's largest financial institutions, with over $1.2 trillion in assets and close to 14,000 branches worldwide.
While the Spanish lender is far from out of the woods in terms of the European financial crisis, its most recent annual results suggest progress. Its net interest income increased by 13.2% from 24.6 billion euros in 2010 to 27.9 billion euros in 2011, and its net profit increased 5.1% to 7.8 billion euros. Its shares are down 4.2% for the year, currently trade for 91% of book value, and pay a monster dividend yield.
4. Telefonica
As its name suggests, Telefonica is a broadband and telecommunications provider headquartered in Madrid. Formally the country's public monopoly, it's now the third-largest telecommunications provider in the world. It has the second-largest wireless subscriber base in the United Kingdom and a large position in Germany, as well as significant presences in Italy, Latin America, and China. For the year, shares in the company are down 9.7% and currently trade for 7.7 times forward earnings. It also sports a double-digit dividend yield based on its past-year payouts.
No pain no gain
Investing in European equities right now is not for the faint of heart. The continent is slumped in economic malaise, and it remains to be seen whether the monetary bloc can even survive the storm.
That being said, my favorite of the four is Spanish telecom giant Telefonica. It trades for a reasonable valuation, pays a generous dividend yield, and, perhaps most importantly, isn't a bank -- the latter being dangerously susceptible to any potential fracture in the eurozone. Not to mention it has garnered a coveted five-star ranking in Motley Fool CAPS, our free investing community of over 180,000 investors.
On the other hand, for those of you with less stomach for risk, check out the companies identified in The Motley Fool's free report, "3 American Companies Set to Dominate the World."
