Portfolio Action Summary

• HSBC is added to the Aggressive Portfolio. Buy up to $55
• Banco Santander is added to the Aggressive Portfolio.  Buy up to $10.
• Seadrill is moved to Hold. 

We’re adding London-based global bank HSBC Holdings (NYSE: HSBC) and Santander, Spain-based Banco Santander (NYSE: SAN).  They have dividend yields of 4% and 7%, respectively. They are among the strongest banks in Europe, which will benefit the most from new European Central Bank stimulus and improved consumer spending.

 Both banks passed the European Central Bank’s stress tests, which looked at whether banks could withstand various economic shocks.  Banco Santander, the Eurozone’s largest bank by market value, had a core capital buffer of 10.34%. Lenders needed a buffer of above 8% of risk-weighted assets to pass the test, so Banco Santander is exceptionally strong.

 Further, while these two banks do compete in many of the same markets in Europe, they are dominant complimentary emerging markets.  HSBC which is the world’s second largest bank with assets of $2.67 trillion, has its origins in Hong Kong and Shanghai and offers investors exposure to higher growth Asian markets.  Banco Santander has a deep presence throughout high growth markets in Latin America.  Both banks offer good diversification between slower developed economy growth and higher emerging markets growth.  

Also, we’ve decided to put oil platform company Seadrill (NYSE: SDRL) on Hold. Oil and gas investments are not for the faint of heart, as they have always been volatile. We may be at the beginning of an extensive, long-term correction as a result of a glut in the oil market due to slower global growth.

 I do still believe in the fundamentals of the firm (I’m long-term bullish on oil), and they have one of the best, newest oil platform fleets in the world. But how they reposition themselves in this correction will be key, and I’d prefer to hold back, watch and wait how management defends its position.

 I think that lower oil prices will push less efficient competitors out of the market and Seadrill will come out on top to dominate the market. But short-term earnings pressures could impact the dividend given their high debt levels, and headwinds from projects in Russia due to geopolitical tensions could hamper earnings. Better to be safe than sorry and not buy more Seadrill.