Progress Report: 10 Latin American Buy Recommendations

In the last three and a half months we have issued 10 buy recommendations on Latin American stocks. In this update we take a look at the performances and change some of the recommendations.

The stocks are looked at in the chronological order of their last recommendation and the title lines feature the ticker code, closing price of the day of the buy recommendation, yesterday’s (May 21st) closing price, percentage change in price and finally the new recommendation. Prices are in US Dollars ($), Canadian Dollars (C$) or Brazilian Reales (R$), according to the stock. So without further ado, let’s see how we’ve done.

Gold Reserve (GRZ) Jan 30th $3.58. Now $5.81. Change +62%. Recommend: HOLD

Hit hard recently by a financing deal that most definitely did not favor loyal long-term holders, we still see plenty of reason to hold GRZ. The fundamentals are sound and as soon as the market has digested its new financial structure we expect it to return to previous highs and beyond. Further buying at this level would make perfect sense if one takes a long-term view and ignore the current inertia.

Crystallex (KRY) Feb 14th $3.26. Now $5.08. Change +56%. Recommend: HOLD

We are pleased with KRY’s performance to date, and expect more to come once the environmental impact permit is granted by the Venezuelan government. Risk/reward certainly favors holding until post permit minimum.

PetroFalcon Corporation [PFC.TO] Feb 14th C$0.86. Now C$0.68. Change -21%. Recommend: BUY

Our biggest loser and disappointment, Petrofalcon has had a seemingly unending streak of bad luck this year including a wellhead fire, delayed payments for its delivered oil and gas and an inability to rise above the Venezuelan macroeconomic oil issues that have taken up many a headline. Despite all this we remain bullish on the stock and expect the fundamental value of PFC.to shine through in the months to come.

Gold Hawk Resources [CGK.V] Feb23rd C$0.55. Now C$0.70. Change+27%. Recommend: Accumulate

Production at their Peruvian Coricancha gold/silver/zinc/lead property started on schedule in April with few reported teething problems. We expect Gold Hawk will grab people’s attention with the publication of the 2q07 earnings report and enjoy even more stock price appreciation as a result. Excellent management team, right metals, right country, right price. We recommended buy at C$0.55 and we recommend buy at C$0.70. An undervalued gem.

Inca Pacific Resources [IPR.V] Feb23rd C$ 0.91. Now C$1.62. Change+78%. Recommend: HOLD

Inca Pacific trod water for quite some time until Raymond James released a very bullish report recommending IPR.v as a buy on May 1st. Since then the stock has enjoyed good press as well and greatly increased trading volumes. We are happy to hold on at these levels and would accumulate on any dip.

Braskem S.A. (BAK) April 3rd $15.31. Now $17.44. Change +14%. Recommend: HOLD

Braskem has got a lift from the anticipated increasing interest placed in Brazilian large cap stocks. We spotted it as a value play one month ago and although tempted to take profits it seems more sensible to hold for the moment. One reason cited for buying in our note was BAK’s value as a counterweight to energy stocks in any portfolio. This is as true today as it was then. We hold.

Telemar Norte Leste S.A. [TMAR5.SA] April3rd R$42.55. Now R$50.50. Change+18.7%. Recommend: HOLD

Phone Company “OI” has moved up on the renewed interest taken in the Brazilian cellular sector. Although we seemed to have picked the wrong horse as in the same time frame Brazilian cellphone competitor Vivo (VIV) has moved up 26% on rumors that parent company Telefonica de España (TEF) want to assume 100% control, we still think TMAR5.sa offers excellent value going forward.

Embraer-Empresa Brasileira de Aero [EMBR3.SA] April 3rd R$23.90. Now R$22.77. Change -4.7%. Recommend: HOLD

We are tempted to jump ship and take our small loss like good soldiers, but as little has changed in the last 6 weeks feel duty bound to give the fundamentals of Embraer time to come forward. The world’s 4th biggest aero manufacturer has just taken on 1400 extra workers in order to combat the delivery delays it is experiencing. Thoroughly deserves its chance to appreciate.

Apex Silver Mines (SIL) April13th $14.95. Now $21.44. Change+43%. Recommend: TAKE PROFITS

Just 5 weeks ago we said that we liked SIL at $15 and expect $25 when production at its mammoth San Cristobal silver mine begins in September 2007. However we are taking profits here at $21.44 as the move looks ‘too fast too soon’. Another factor to consider is last week’s announcement by the Bolivian government that total tax burdens on miners operating in the country will soon be around 50% and not the current 35% total burden.

When a mining stock offers you an excellent return in a short space of time, take it. A simple case of good portfolio housekeeping. If fortune allows, we will look for a lower price to re-enter SIL going forward.

GOL Linhas Aereas Inteligentes SA (GOL) May3rd $29.09. Now $30.66. Change+5.4%. Recommend: BUY

Recommended just 2 weeks ago, the 5% move since then puts us on the right side of the trade. It is far too early to change the recommendations and therefore our top LatAm airlines pick remains a fully justified “buy”.

Conclusion

So far we have enjoyed good fortune with the stocks recommended in our SeekingAlpha published notes. PFC.to keeps us humble and reminds that ‘you can’t win ‘em all’ and we were lucky with our timing on SIL, but on the whole the first part of the year has been a success.

An even investment in the 10 shares highlighted on the days in question would return 27.8%, which compares favourably to our Latin America benchmark, the iShares S&P Latin America 40 Index (ILF), which would have returned 14.8% using equal stakes investments on the days in question.

Also worth noting that we have kept our returns in the currency of investment and not converted them back to US dollars, which in the case of the Brazilian Real would have given us an extra 6% currency appreciation since April 3rd.

Critics can say that any fool picks winners in a bull market. Plenty of truth there, and it is undeniable that LatAm has been hot so far this year even taking into account the “carry trade correction” of late February. However using an index benchmark shows that with a little application one can find value plays that fly under the radar of mutual fund, hedge fund and ETF investors. We see little logic in handing one’s financial fate to a committee that ploughs your cash into the usual suspects (in the case of Latin America that means Petrobras, America Movil and CVRD) and ignores the value lying just under the surface. Local knowledge still counts for something, it seems.

Comments

[six17:]

on the Mark consider Glencairn Gold "GLE" lots of news to come solid management,gold reserves and resources up, low cost production turn around story...going up
thanks
Robert

2007 May 22 07:48 AM

[UserThunder...:]

The list is funny. At the time, I disagreed.

Mar 12 05:56 PM