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Sovereign Bancorp: Finally a Bottom?

May 21, 2008

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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:

  1. There is blood in the streets for Sovereign.
  2. Insiders are buying heavily.
  3. 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.

Finding many more investments that offer an overwhelming potential for fantastic returns, check out the Investment Advisor Newsletter service, offered by Freund Investing.

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Freund Investing contributor Ryan Freund loves finding undervalued stocks. He does not own any shares in any of the companies mentioned. Freund Investing has a disclosure policy.


Written by Ryan Freund · Filed Under Economy, Financial, Recession, Value Investing 

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Freund Investing, based in Worcester, Massachusetts and Boston, Massachusetts provides stock market investment and investing advice for the intelligent investor. To do so, Freund Investing publishes stock market investment and investing advice through both articles and the Investment Advisor Newsletter. Freund Investing also provides stock market investment and investing advice to investors in a concise, accurate, and objective manner. Freund Investing, based in Worcester, Massachusetts and Boston, Massachusetts, is not paid by any third parties for the stock market investment and investing advice provided and discloses any relationship we have to any stock investments discussed. Freund Investing is not a registered Investment Adviser, nor is Ryan E. Freund a registered Investment Adviser Representative. In the near future, Freund Investing will be registered as an Investment Adviser with Ryan E. Freund being a registered Investment Adviser Representative of the registered Investment Adviser firm. Freund Investing intends on providing wealth management, investment adviser services, and financial planning to clients once registration as an Investment Adviser is complete, as well as registration of Ryan E. Freund as an Investment Adviser Representative is complete in the State of Massachusetts. Objective stock market investment and investing advice is invaluable to investors, and we sincerely hope you enjoy your stay here at Freund Investing.