Brazil: The Only Market Worth Investing In

by: Danny Furman

Wednesday on CNBC, Jim Rogers insisted that China and Brazil are the only BRIC countries worth investing in. Despite an election conducive to more capitalistic policy, India's ritualistic culture discourages competition, greed and other growth drivers. Russia is still in a newly liberated economic state, in which citizens have so much incentive to enjoy previously denied economic freedoms that they will make frivolous financial decisions until enough time passes or national policy encourages productivity and saving.

China's case is well documented and will not be rehashed here, as I believe Brazil is the only market worth investing in today. Brazil is the only nation with an immediate future of increased production and consumption. Unlike China, Brazil has provided more developed economies things they need, not things they want (sorry if I underestimate the value of your Pokemon cards, Playstations and Beanie Babies). The death of the American consumer only affects Brazil if it is a literal one, meaning Americans no longer need sugar, bananas or oil.

In June I recommended aggressively buying Brazil stocks after a commodities selloff hit the Brazil ADRs extremely hard. Still today, despite 300%+ YTD gains in CZZ, GOL and others, Brazil is by far the cheapest market out there. SBS, CPL and BRF are still my favorite fundamental ways to play booming consumption and infrastructure growth in South America's largest country, but bargain hunting is what I do and the Brazil ADR market is littered with stocks undervalued relative to international peers. The following are attractive, albeit less popular investments in what I consider the only real bull economy.

1. Brazil Fast Food Corp (OTCPK:BOBS): Q209 revenues were profitably up 62% YOY. The Company sells Pizza Hut and KFC franchise licenses for $60,000 and collects 5% of total sales from each restaurant. The model is extremely supportive of increased profitability as long as revenue continues to grow. Recent growth is seemingly due to a Brazilian love affair with subpar pizza, but the real story will be The World Cup, The Olympics and millions of tourists averse to trying new food. With volume starting to pick up, this thinly traded stock is as good a candidate as I know to return 100%+ the rest of this year.

2. Navios Maritime Partners (NYSE:NMM): This high-yielding MLP has been buying ships at bargain prices all year and, unlike many bulk dry shippers, seems to be actually using them. With a yield near 10% and a busy decade of importing and exporting ahead for Brazil, NMM is likely one of a few stocks Peter Schiff wouldn't yell at you for buying. Parent company Navios Maritime (NYSE:NM) trades at a cheaper P/E and P/B but only yields 4-5%.

3. Braskem (NYSE:BAK): This may be the stock that has performed the best since Rio de Janeiro was named host of the 2016 Olympics. I've been following BAK, a petrochemical company, for about 6 weeks and kicked myself for not buying at $9.50 when it first hit $11/share. Today it trades near $14/share and is up about 20% in the last week. Q2 was a record quarter with earnings over $2/share and, while Q3 forecasts are less rosy, refined oil consumption in Brazil has nowhere to go but up. I consider BAK a better investment than PBR because it is only dependent on domestic consumption, not international demand for oil. Any market pullbacks will hit BAK hard so this Brazil ADR is one I wouldn't rush into.

Disclosure: Long SBS