Time to Get Back Into Gafisa as Buffett Explores Brazil Opportunities?

Feb.14.11 | About: Gafisa S.A. (GFA)

The news surfacing last week was that Warren Buffett and his famed investment vehicle, Berkshire Hathaway (NYSE:BRK.A), might be headed to Brazil to invest in land. On top of that, some of the other news was that the government of Brazil may reduce spending in order to shore up interest rate expectations. Not to mention that several analysts believe that the worries over the impact of high interest rates on housing have been overdone. If so, this might be the ideal time to follow Buffett into buying a company in the land or homebuilding business in Brazil.

Gafisa (NYSE:GFA) is a leading homebuilder in Brazil. The stock is currently down 30%-plus from highs set back in October, just over $18. High inflation and interest rate hikes have greatly dented the stock price since the October highs. Now might be the time to get back into the stock even though it had a big 4.6% jump on Friday.

More on Buffett: According to a Forbes Blog, Buffett is looking to start an acquisition company in Brazil to buy up land in the Amazon. OK, this is not the same as buying a homebuilder, but it's definitely the same concept of investing in the general sector that would be impacted by higher interest rates and a slowdown in the economy. Whether Buffett sees demand from the World Cup in 2014 and Olympics in 2016 or just a general boom in global demand making agricultural more valuable he is looking at Brazil as opposed to places like Africa. Africa would be a lot cheaper and possibly even closer to the markets of China and India in need of food, but that's not the option the Oracle of Omaha is looking to explore.

  • According to the report,Warren Buffett, the world’s third richest man, and his famed investment vehicle, Berkshire Hathaway, are interested in buying up land in the Amazon and are negotiating starting an acquisition company in Brazil specifically for this purpose. Apparently Berkshire execs were visiting Brazil about a month ago checking out the area.
  • If Buffett truly is headed to Brazil, domestic businesses would have the most to gain - and could get the chance of the lifetime: partnering with Buffett. Back in July, the Brazilian government announced it was putting a limit on foreign ownership of land. So unless there’s a way around the new rules, Buffett would need a domestic partner to get the wheels in motion.

According to a Bloomberg report one of the major points for investing in Brazilian homebuilders, according to analysts, is that interest rates in Brazil are set by the government, hence they aren't impacted by central bank increases.

  • “Even if interest rates keep rising, as we expect, there won’t be a significant impact on housing credit, which is the key driver to this industry,” Armando Halfeld, an analyst at Ativa Corretora in Rio de Janeiro, said in a phone interview. “The market has over-reacted over this issue.”
  • Interest rates on most housing loans in Brazil are set by the government, and aren’t significantly affected by increases in the central bank’s benchmark lending rate, Halfeld said.

Anybody wanting to invest in Brazil or Gafisa had the golden opportunity last week. Whether that was the bottom for the stock is still uncertain. But it's no doubt that the opportunity is a lot more attractive as the fast money has exited the emerging markets, providing for a much more desirable entry point.

Disclosure: I am long GFA.

Additional disclosure: Long GFA in Covestor models.