4 Stocks for an Unexpected Recovery

Smart investors know that once the conventional wisdom is established, it's
time to start looking for contrarian ideas. And right now, there's few things
that market participants agree on more than the notion that global economic
growth is about to fall off a cliff. This might well be the case but what if it
isn't? If the world economy suddenly catches the market off guard by
stabilizing at level of slow but steady growth, the recent collapse in
valuations creates the fuel for a major rally. This is especially true now, as
we exit September and inch closer to the seasonally strong period between
mid-November and New Year's. Given the market's tendency to catch the
"crowd" off-guard, it's time to start putting together a list of stocks
that can outperform in the scenario laid out above. This is undoubtedly a risky
group, but these names are likely to be an excellent source of beta if investors
catch a whiff of steadier growth. Banco Santander 12-month forward P/E: 7x Drop
from 2011 high: 37.2% Click to Enlarge That's right the first stock on the
list is a European bank. But Banco Santander (NYSE: STD ) is no ordinary
European bank as the company took pains to point out with a full-page ad in
Barron's last weekend, 88% of its profits are generated outside of Spain, and
51% come from outside of Europe altogether. Santander is a strong,
well-capitalized global bank that has some exposure to Spain, but less than its
price performance would indicate. There's no doubt that as long as the
European debt crisis remains in the headlines, the stock will face headwinds.
But with a 7.5% yield, a 7 P/E and a price-to-book of 0.49, much of the bad news
already has been discounted into the stock price. Santander with a beta of 1.83
is a fast mover, and one with a history of generating strong returns when
worries dissipate. Its shares rose about 250% in the nine months that followed
the 2009 bottom, and they rebounded over 60% within two months when the first
round of Europe-related worries lifted in the summer of 2010. Banco Popular
12-month forward P/E: 4.6x Drop from 2011 high: 57.4% Click to Enlarge With
shares trading at $1.53, versus the high 20s back in 2005, Banco Popular
(NASDAQ: BPOP ) the largest commercial bank in Puerto Rico looks like a stock
destined to disappear. In fact, BPOP actually is very healthy and very
undervalued. The company has a large (40%-plus) share of the nation's deposits
after a wave of industry consolidation has removed several of its competitors, a
positive for its net interest margins. On Thursday, Popular sold a portfolio of
construction loans an long-anticipated transaction whose delay has put a modest
cloud of uncertainty for the stock. The company also has a stake in a
transaction processing company that accounts for nearly 40% of its current share
price. Popular, which trades at under 0.4 times book value, has dropped off the
radar after being a "story stock" in the middle of the last decade. It's
risky, but it stands to benefit from both organic growth and, if economic fears
subside, there is room for significant valuation expansion. The average analyst
price target is $3.50, 78% above Thursday's close.