Due to its on-the-ground economic situation, as well as its debt troubles, Greece has attracted a lot of attention from contrarian investors looking for value and recovery. But many investors have focused on National Bank of Greece (OTC:NBG.DL) as if it's the only suitable Greek investment.
I'll show why investors should look beyond this bank to other Greek companies that could round out a Greek recovery portfolio.
While National Bank of Greece gets the most attention in the American investment community, it's far from the only bank in Greece. True, it's the largest, but there are three other large banks that are also part of Greece's four-pillar banking system.
These other three banks are Alpha Bank (OTC:ALBKY), Piraeus Bank, and Eurobank (OTC:EGFEY). Currently, Alpha Bank and Piraeus Bank remain majority government owned like National Bank of Greece; but Eurobank is in a different situation.
While all four of these banks were recapitalized by the Greek state, Eurobank received another round of recapitalization from private investors. A consortium of investors lead by Prem Watsa and Wilbur Ross recapitalized the Greek bank, and brought it back to majority private ownership.
At this point, Alpha Bank, Piraeus Bank, and Eurobank are all worth looking at for those currently considering National Bank of Greece. All of these banks trade at about half their book value or less, carry significant exposure to Greece, and have a substantial state interest. Additionally, analyst forecasts also call for each of them to return to profitability in the next couple of years, with National Bank of Greece currently being profitable, Alpha Bank and Piraeus Bank seeing profitability in 2015, and Eurobank in 2016.
Although they trade with lower volumes in the U.S., shares of the three non-NBG banks can be bought over the counter. For those looking for more liquidity, the shares trade with higher volume on the Athens Stock Exchange, which can be accessed through some international investing brokerage accounts -- Fidelity being one example.
While Greek bank stocks remain risky, diversifying among them could be a good move, especially if you're bullish on a Greek banking recovery as a whole, and not attached to any particular bank.
Greek banks, and National Bank of Greece in particular, tend to get the most attention among Greek investments in American financial circles; but Greece is far more than just a banking country. In fact, non-bank stocks carry the advantage that they are not subject to the same capital requirements at banks protecting them from the share dilution that has seen Greek bank shares outstanding explode since the financial crisis.
Fortunately, there are many consumer and industrial companies in the country that have also seen their stock prices beaten down by the economic slowdown, and these are worth looking at for investors interested in Greece as a whole.
Although it carries a larger-than-average amount of government risk due to majority state ownership, Public Power Corporation is worth looking at. Currently, this company is one of the cheapest utilities/energy companies in the world, trading at 5.4 times estimated 2015 earnings, and 0.25 times book value. This company is Greece's effective power monopoly, mining the coal, generating the electricity, owning the transmission lines, and selling the power.
Aegean Airlines is also worth considering, as it could be a major beneficiary of Greece's tourism industry. After acquiring Olympic Airlines, Aegean is now Greece's only major airline, although it does face competition from other European carriers. The airline also receives a Greek discount despite currently being profitable, trading at only 7.5 times estimated 2015 earnings, and paying an 8% dividend.
Engineering, mining, and construction company Mytilineos Holdings also could be a good way to diversify beyond banks. The company could benefit from a turnaround in construction spending, is profitable, and trades at only 7.2 times estimated 2015 earnings.
All three of these companies trade with significantly higher volume on the Athens Stock Exchange, so investors should consider an account with international investing features if they want to invest in these stocks.
If you're looking for a broad-based approach to the Greek economy instead of picking individual stocks, the Global X FTSE Greece 20 ETF (NYSEMKT:GREK) may be right for you. Its basket of holdings covers banks, consumer goods, construction, and energy.
The ETF carries a 0.61% annual operating expense, which, while higher than domestic stock ETFs, could be considered reasonable to provide exposure to this set of international stocks.
The bottom line
National Bank of Greece receives lots of attention in American investment circles as the way to bet on a Greek recovery; but there are other areas investors should also look at if they want to make a contrarian investment.
Alpha Bank, Piraeus Bank, Eurobank, and non-bank stocks provide diversification beyond a single Greek company allowing investors to benefit from recovery in other areas of the Greek economy. Unless you're bullish specifically on National Bank of Greece, it may be worth your while to look at other Greek investments rather than focusing on one bank.