John Christy, editor of The Forbes International Investment Report, has long held Barclays (NYSE: BCS) in his model portfolio, and in recent months has been anticipating a merger deal. He now notes, "Rumors of a deal between Barclay's and Dutch bank ABN-Amro (NYSE: ABN) appear to be turning into reality."
This deal, in his view, will be an "interesting strategic combination" – in part because ABN's businesses in Europe, Asia and Latin America, for example, will help Barclays expand its global reach. Further, he notes that Barclays is a "pretty good" value, trading at 10 times earnings and paying nearly 4% dividend.
Despite its positive operating outlook, the advisor is choosing to sell the stock, noting, "Interesting strategic combinations aren't always the best stock picks."
He explains, "Huge mergers are always a lot tougher than they look and cross-border deals are also notoriously difficult to pull off. The case, but the prospect of a mega-merger brings a lot of fresh uncertainty that we didn't have to worry about before."
Therefore, he concludes, "Even though I like the concept on paper, the execution risk is a big concern." As a result of these developments, the Forbes editor is removing Barclay's from his portfolio.
The advisor, however, continues to like the European banking sector, and therefore is adding Allied Irish Banks (NYSE: AIB) to his portfolio as a replacement for Barclays.
He notes, "Last year Allied Irish Banks delivered 63% net income growth on continued strength across the board in the Irish economy. But the really neat thing about AIB is that you also get exposure to Poland"
He also speculates that the Barclays-ABN deal would lead to a new wave of consolidation in European banking. He says, "If that is the case, I have to believe that a great bank like Allied Irish would be an interesting target for someone. And with a market cap of just $27 billion-about a third the size of ABN-Amro-it would be a lot easier to digest."
For more stock picks from the leading financial newsletter advisors, visit Steven Halpern's free daily website, TheStockAdvisors.com.
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Reader Comments (Page 1 of 1)
4-23-2007 @ 10:05AM
Steve said...
It is a large potential merger in every aspect.
In some ways... it is really quite logical. The company I would love to be is the legal firms representing these companies. They are the real winners.
http://www.imitrust.com/thepit
4-24-2007 @ 1:44PM
Athelstan said...
I would suggest holding Barclays AND buying Irish banks. Both will provide excellent returns over time.
4-24-2007 @ 1:47PM
Athelstan said...
I would suggest holding Barclays AND buying Irish banks. Both will provide excellent returns over time.