6 South American Stocks Offering Interesting Opportunities

I thought I would put up a list of some interesting South America stocks for a pair of reasons. First as you can see from the chart above of the ETF for the Latin America 40 (ILF) that the region’s stocks have pulled back significantly over the recent few months. Second, I have a strong interest in the region and keep my eye out for interesting stocks. I hope to point out a few here you have not heard of or considered.

Here are 5 stocks (in alphabetical order) you may want to look at further:

Embotelladora Andina (AKO.A) - Chilean Coca Cola distributor sells products in central Chile, north central Argentina, and southeastern Brazil (including Rio de Janeiro). The company's territory has a population of about 40 million. In South America selling Coke products is as close as you can get to a money machine. For 2007 the company had EBITA of $291 million on sales of $1.28 billion. The stock trades Class A and B shares with both listed as ADRs: AKO.A and AKO.B. The Bs have a slightly higher price and earn proportionally higher dividends. AKO pays small quarterly dividends with a single additional large dividend at the end of May. Total payout is set at 30% of net income and current yield is about 4%. Coca Cola (KO) holds about 11% of the stock, equally split between A and B shares.

Banco Bradesco S.A. (BBD) Brazil’s largest private-sector bank with about 20% of all deposits and is also the country’s largest insurer and pension administrator. For the first half of 2008 approximately 1/3 of profits were from the insurance and pension side and the balance from banking services. BBD has a balanced loan portfolio of small business, large corporate, individual and mortgage loans.

Revenues are also earned from leasing, credit cards and payment processing. The company has been moving aggressively into mortgage origination as Brazil’s growing middle class steps up to home ownership. In the first half of 2008 the bank’s credit portfolio increased by 38%. For an investor looking for a company that has a finger in all things financial in Brazil, Banco Bradesco deserves a long look.

Gafisa S.A. (GFA) Rapidly growing homebuilder Gafisa is another way to invest in Brazil’s growing middle and merchant class. Gafisa has expanded to offer homes throughout Brazil including affordable entry-level suburban and urban projects. Unit home sales have basically doubled each year from 2004 to 2007 and are on pace to add at least 50% in 2008. The company’s data show a national deficit of 7.5 million homes and it aims to take a big bite of that deficit. Recent declines in interest rates and improved mortgage products should continue to propel Gafisa’s growth. Definitely different from the current plight of U.S. homebuilders.

IRSA (IRS) Argentine developer and operator of shopping centers, commercial real estate, residential real estate and luxury hotels. The company has an impressive record of growing revenues and has been less than stellar at generating net income. The company intrigues me as a play on the strong real estate growth in Argentina and scares me because it is Argentina. I have little faith in the government there keeping the economy on an even keel. This is a stock I keep looking at and haven’t developed a strong enough stomach for yet.

Companhia Siderurgica Nacional (SID) This Brazilian steel producer is another money factory. The integrated, and I mean integrated, company controls its process from mine to ship. It owns or controls the mines, railroads, power plants, furnaces, mills and port facilities. The company has a 40% EBITA profit margin. 80% of production is consumed in the home market and 20% is exported, leaving plenty of room to grow its global presence. For investors, SID has strong dividend and stock buyback programs. I consider SID a strong way to participate in Brazil’s abundance of natural resources.

Tele Norte Leste Participacoes S.A. (TNE) As Brazil’s largest telecommunications provider, Oi (as it is now called) provides individual and corporate services in fixed line telephone, broadband internet, and cellular phones. Although the land line service is flat, broadband and cell phones have been growing at 30% to 40% per year. Oi is currently in the process of purchasing Brazil Telecom to further tighten its hold as the country’s leading telecommunication provider. Cell phone services and broadband internet are still very high growth lines and should propel TNE for the foreseeable future.

The 6 stocks listed above are from my site’s Watch List and I think offer interesting opportunities in South America. My belief is that the South American markets are often driven by North American expectations, so watch your timing if you intend to invest in stock or ETFs from the region.

Note: At the time of writing I have no position in any stock listed.

Comments

[granger:]

SDA maybe

2008 Aug 06 12:32 PM

[TAMR666:]

WORTH A LOOK

2008 Aug 06 05:54 PM

[David Hunkar:]

Tim
Interesting picks. Thanks for the post.

2008 Aug 06 06:06 PM

[Lockstep In...:]

Good list and nice, concise analysis. Thanks.

2008 Aug 06 08:28 PM

[g0lry:]

Interesting some gems for the future.But some notable omissions. dont forget ELP and Petrobas

2008 Aug 08 03:51 PM