With the European stress tests showing that the vast majority of the region’s banks are able to cope with a challenging scenario, the sector is likely to benefit from a short-term boost. This is good news for investors in the sector and, more importantly, shows that while the European economy may still be struggling to post impressive growth numbers, it is on the road to recovery.
Despite this, it is still possible to pick up shares in a number of high-quality European banks at very attractive prices. Indeed, two fine examples are Standard Chartered (LSE: STAN) and Santander (LSE: BNC) (NYSE: SAN.US), with both banks having the potential to make gains of more than 46% in 2015. Here’s how.
Growth Potential
While the European economy is set to deliver little in the way of growth in 2015, it is expected to be a very different story for Santander and Standard Chartered. As a result of their exposure to the faster growing economies of the UK and Asia, the two banks are forecast to increase their bottom lines by 21% and 11% respectively next year. These are both hugely attractive growth numbers and show that, as well as being capable of withstanding a stress test, they remain highly attractive growth plays, too.
Share Price Upside
With Santander currently trading on a trailing price to earnings (P/E) ratio of 17.4, it seems as though investors are very willing to pay a premium to the FTSE 100’s P/E ratio of 13.4. With its bottom line due to grow by 24% this year (followed by the previously mentioned 21% gain in 2015), this could mean that shares in Santander trade at a level that is 50% higher than the current share price in 2015.
This may seem to be a very optimistic price target, but could be achieved via shares in Santander maintaining their current rating and the bank being able to deliver on its near-term profit forecasts.
More Potential Gains
Similarly, shares in Standard Chartered could also deliver strong gains in 2015. Unlike Santander, Standard Chartered trades at a discount to the wider index, with it having a P/E ratio of 10.1. Were Standard Chartered to trade on the same rating as the wider index, it could mean that shares are 46% higher than their current price level.
As with Santander, this may appear to be very optimistic. However, with the Asian economy enduring a disappointing period but still having a very bright long-term future, Standard Chartered could easily see its P/E ratio move upwards over the next year. When combined with the aforementioned 11% earnings growth forecast for 2015, this change in rating could push shares 46% higher than their current level.
As a result, shares in Santander and Standard Chartered seem to offer huge potential at current price levels. As such, they could be well worth adding to your portfolio.