How to Play Latin American Banks

Includes: BFR, BMA, ILF
by: Emerging Money

Latin America is home of some of the world's great banks, and many of the best do a lot of business in Argentina. Here are some tips on how to trade just a few of them.

BBVA Banco Frances (NYSE:BFR) is a subsidiary of Spain's Banco Bilbao Vizcaya Argentaria (NYSE:BBVA) but enjoys a fair bit of independent market action in its own right. It should be considered a small-cap growth play despite its position in a sector (banking) that would be considered a hotbed of value in the United States.

BFR seems to be trading at a discount with a PE value of 7.7064, one of the lowest in the global industry. Furthermore, the company's operating margin of 30.56% is well above many of its peers.

Short interest and institutional holdings are both minimal, at 0.57% and 2.30%, respectively.

Bottom line: BFR has been making higher highs and higher lows since the end of May with a new 52-week high today. With no options available, the stock would need to be bought outright. Dividend yield is a spectacular 6.46%. Consider any pullback off the 52-week high as a gift for new buyers; current owners gain protection from the dividend and/or buying a put on the iShares S&P Latin America 40 Index ETF (NYSEARCA:ILF).

Banco Macro (NYSE:BMA) is another great domestic bank that should be considered a mid-cap growth play.

BMA seems inexpensive with a PE value of 11.5447, well below the group average, and is comfortably profitable with operating margins of 38.94%.

Short interest is a minimal 0.86% and institutions hold a healthy -- but not overwhelming -- 21.61% of the float.

Bottom line: BMA is 3.77% off a 52-week high touched last month. The stock traded sideways until today and has now broken back above the trend lines -- from the 4-day moving average to the 200 mda. BMA's profitability should not be discounted, especially because it returns much of that profit to shareholders in the form of a 2% dividend yield. With no options to play, the only thing you might be able to do to protect yourself from downside would be a hedge on the ILF. Nonetheless, any pullback should be a buying opportunity.

Disclosure: No positions