Morgan Stanley removes Petrobras (PBR -1.4%) from its newest focus list of 10 high-conviction stocks in Latin America, believing the market has priced in too much optimism for political change.
The firm says its recent survey suggests both the stock and the Bovespa index are pricing in a 52% chance of macro policy change, so the risk/reward of the stock is similar to the market benchmark - i.e., no relative performance leverage to the upside.
Stocks on the list include Gerdau (NYSE:GGB),Grupo Televisa (NYSE:TV), Ambev (NYSE:ABEV), Embraer (NYSE:ERJ), Cemex (NYSE:CX) and Copa Holdings (NYSE:CPA).
Beer production in Brazil fell 2% last year as consumers struggled to meet some of the higher prices charged by brewers. It was the first time in four years production fell, according to government tracking.
The region continues to be a disappointment for an industry (BUD, HINKY, ABEV, KNBWY) which has invested heavily on growth with the World Cup and Olympics both upcoming.
"It's not that there aren't consumer companies, it's that they're not there in the size and liquidity that most investors want," Nicholas Smithie, chief investment strategist at Emerging Global Advisors tells Barron's.
Big indices that track Latin America tend to focus on financial, energy, and materials stocks, meaning investors aren't getting much exposure to the consumer sector. That's a shame given that "the purchasing power of the region's five major countries is greater than all of China's middle class."
Those wishing to tap this potential may want to consider the EGShares Emerging Markets Consumer ETF (ECON) or the WisdomTree Emerging Markets Consumer Growth fund (EMCG).
As for individual names, Barron's mentions Grupo Televisa (TV), BRF (BRFS), Copa Holdings (CPA), and, of course, AmBev (ABV).
Ambev (ABV +1.7%) trades up after Credit Suisse upgrades the brewer to Buy from Neutral with a Pt of $41.70.
The bank thinks it wise to side with the best-in-class in a tumultuous LatAm consumer environment and notes, "Ambev's P/E premium vs. the broad Brazilian market is at its lowest point in the last 3 years." With a largely unchanged outlook over the past year, "this relative de-rating in not justified."
Credit Suisse also observes that Ambev scores well relative to peers globally on the bank's economic volume growth, market power, and risk profile metrics.
"Volumes in Brazil in March, in particular, were more challenging than expected," Anheuser-Busch Inbev (BUD) says, impacted by high food inflation and a slowdown in the growth of disposable income. "We expect these factors to continue to put pressure on volumes in the short term. We are therefore revising our outlook for volume growth in Brazil and now expect that beer industry volumes in FY13 will be either flat or down low single-digits compared to FY12."
Anheuser-Busch Inbev (BUD): Q1 Ebitda of $3.43B misses by $0.14B. Revenue +1.5%. Volume declined by 4.1%, led by an 8.2% plunge in Brazil; China volume rose 15.5%. Cost of sales rose 3.8% due to input costs. Gross margins shrunk 96 bps to 57.4%. Shares -2.9% in Brussels. (PR, Bloomberg)
Companhia de Bebidas das Américas—AmBev is the successor of Companhia Cervejaria Brahma (“Brahma”) and Companhia Antarctica Paulista Indústria Brasileira de Bebidas e Conexos (“Antarctica”), two of the oldest brewers in Brazil. Antarctica was founded in 1885. Brahma was founded in 1888 as...More