Sovereign Bancorp (NYSE: SOV) has been beaten down badly. They, like every other bank,
made poor decisions when selecting which loans they would fund. As an investor,
it’s my job to look for signs that struggling banks have finally hit bottom. If
such signs existed, certain banks would be the value of the decade. Well, folks,
I think I found such a sign in Sovereign.
Here at Freund
Investing, we track insider purchases quite heavily, because we believe they
are indicative of a strong investment. Over the past few weeks, insiders at
Sovereign have been buying boatloads of the company’s stock at current market
prices. In fact, they’ve bought nearly $1 billion worth. Now, I know that some
of this was part of the equity offering that Sovereign introduced to raise
capital, but it doesn’t change the fact that insiders bought at $8 per share,
and the current price is only $8.10. Insiders sell for many reasons, but they
buy for only one reason: they believe the stock is undervalued.
Sovereign is not easy to value. But I can tell you with certainty that those
who can value it best are working there every single day; the insiders. What I
can also tell you is that one of the significant buyers was Banco Santender
(NYSE: STD), who
has been slowly building up it’s position in Sovereign.
So if we put it all into perspective, we find that:
- There is blood in the streets for Sovereign.
- Insiders are buying heavily.
- Banco Santender still likes Sovereign a whole lot, and might buy them
completely at some point in the near future.
I don’t pretend to be able to value Sovereign completely. But from all the
insider activity, activity from those who do know how to value Sovereign, I
believe we have found a bottom for Sovereign. While the timing may be slightly
off, the 3.9% dividend will even pay you while you wait for the company to
either start performing better or get bought out. Pretty solid odds from my
perspective.
