Investing in European Banks: Winners and Losers

NEW YORK (TheStreet) -- After a dismal first half of the year with continued litigation for some banks, economic weakness in Europe and geo-political tensions in the Middle East and Russia, the European banks have taken it on the chin and so have their investors. The iShares MSCI Europe Financials (EUFN) , a broad-based European financials ETF, is down almost 3% for the year, but down almost 9% from its high on June 6. The fund's holdings include: HSBC Holdings (HSBC) , Banco Santander (SAN) , Lloyds Banking Group (LYG) , BNP Paribas BNP, UBS  (UBS) , Barclays  (BCS) and many others.

Compare this to the most popular U.S banking index -- the Financial Select Sector SPDR ETF (XLF) , with holdings in Wells Fargo (WFC) , JPMorgan Chase (JPM) , Bank of America (BAC) , Citigroup (C) and others -- is up 7% for the year and is currently trading at its year-to-date high and up almost 14% off the lows from February 2014. The chart below summarizes the year-to-date performance of the two funds:

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So with major U.S. banks making 52-week highs earlier in the year and now getting ready to test those highs coming into the third quarter, what about the beaten down European banks? Of 12 largest European banks, only 25% have hit new highs within the last three months compared to 40% of the largest U.S. banks hitting new highs in that same period.

If you are a value investor and seek to maximize your return on beaten down European bank names, here is a list of those banks and how far off their 52-week highs they are:

The table above is sorted by those banks with the highest financial strength rating through mid-year and then by the percentage off their 52-week highs. FSR is an indication of how well the bank is managed on a financial basis (capital, asset quality, profitability, liquidity and stability). The average price target and expected 12 to 18 month return are part of the stock analysis.

The estimate beats over the last three years and 90-day revisions (up or down) provide a good indication of the reliability of those earnings estimates and the likelihood that those price targets or returns will be hit in the future. Average 10-day volume was included to show how liquid the stock is for trading purposes -- the higher the volume the easier it would be to trade (buy/sell) the stock.

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