2014 World Cup Investing By Country: South America

by: Chris Katje


Brazil companies will get a boost from the 2014 World Cup.

Arcos Dorados has over 800 McDonald's in Brazil and could be one of the biggest beneficiaries of the World Cup.

Avianca Holdings and LATAM Airlines both offer exposure to growing aircraft, flights, and infrastructure in South America.

The 2014 World Cup kicks off in Brazil on Thursday June 12th. A total of 32 teams will compete to win the quadrennial tournament. While Brazil could be the biggest country to prosper, with millions traveling to the region to watch games featuring their favorite countries, there are other companies that could also benefit from a strong tournament.

Aside from the companies that will benefit directly from the tournament, I thought it would be fun to look at companies headquartered or with a large presence in each of the countries. My goal of selecting one stock and ETF for every country is to introduce some unknown companies to investors and also show off some forgotten ideas.

The picks are listed in several articles, broken down by geographic region. Ideas for stocks were not found for Honduras, Iran, or Algeria. Information was obtained from ETF Database and the World Bank for many of the picks.


Group F

Stock Pick: Arcos Dorados Holdings (NYSE:ARCO)

Arcos Dorados is the world's largest franchisor of McDonald's restaurants. This restaurant giant has the exclusive rights to franchise McDonald's in 20 countries in Latin America and the Caribbean. Arcos owns and also franchises out locations in these countries.

In the first quarter, Arcos revenue declined 6% to $915.5 million. Total systemwide sales, including franchisees, increased 8.8%. The company ended the first quarter with 2069 restaurants, 2310 dessert centers, and 343 McCafe locations. In the quarter, Arcos added 110, 339, and 15 of these three store concepts respectively.

The 2014 World Cup should provide a boost to Arcos' sales. At the end of the first quarter, Arcos had 816 McDonald's restaurants in Brazil. These stores saw systemwide sales growth of 3.4%. These stores are investing heavily in the 2014 World Cup. In fact, the stores recently launched a daily team inspired sandwich launch. The promotion features a country inspired sandwich every day of the week, with the countries of Argentina, Brazil, France, Germany, Italy, Spain, and USA being represented.

I was a former shareholder of Arcos Dorados and recommended buying shares several times on Seeking Alpha, with the last being August of 2012. Shares have fallen sharply due to concerns of the company's ties to Venezuela, who has seen soaring inflation. Other regions like Brazil and Argentina have also seen currency woes that have hurt recent earnings. Shares are down 11% in 2014, 25% in the last year, and 51% since their 2011 IPO.

ETF Pick: FTSE Argentina 20 (NYSEARCA:ARGT)

Argentina is well represented in ETFs with over 100 holding assets in the country. However, the largest ETF, the FTSE Argentina 20, has just 50% of assets in the country. The fund has only $10 million of assets and holds 22 stocks.

The top ten holdings represent 78% of the fund's assets. The number one holding is Tenaris (20%), a large maker of tubes in the energy and industrial fields. Mercado Libre, the Ebay of Latin America, is the number three holding with 12% of assets. Arcados is a top ten holding with 4% of assets. Materials (32%), consumer (20%), energy (17%), and financials (15%) make up large stakes in the fund.


Group A

Stock Pick: Brazil Fast Food Corporation (OTCPK:BOBS)

The 2014 World Cup is taking place in Brazil. The 2016 Summer Olympics will also be held in Brazil. Millions of people will attend these events and will need a place to eat. Enter Brazil Fast Food Corporation, one of the largest restaurant companies in the country.

Brazil Fast Food owns the Bob's brand, which was founded in 1952 and has over 700 stores in the country. Bob's has 47 owned stores and an impressive 661 franchised locations. Along with this owned brand, Brazil Fast Food also franchises Pizza Hut and KFC restaurants from Yum! Brands (NYSE:YUM).

In the first quarter, Brazil Fast Food saw system wide sales increase 17.6%, helping total company revenue increase 14.2%. The key to growth was the Bob's brand, which saw franchise sales up 17% in the quarter.

Brazil Fast Food is growing restaurants and also has plans to grow some of its smaller brands like Doggies and Yoggi, into multibranded stores with its Bob's brand. This growth along with the inflow of visitors to Brazil should see Brazil Fast Food increase revenue at a high rate, leading to nice returns for investors. Shares are up 43% in the last 52 weeks, but remain up only 1% in 2014.

ETF Pick: Brazil Infrastructure Fund (NYSEARCA:BRXX)

There are many Brazil related ETFs to choose from. The problem is many of them have a large holding in Petrobras (NYSE:PBR). My pick for the country is Brazil Infrastructure, which should see strong growth from the build out of venues for sporting events and also the infrastructure to expand a growing telecommunications network. The ETF has 31 holdings, with utilities (28%) and industrial (19%) making up the largest weighting.


Group B

Stock Pick: Cencosud (NYSE:CNCO)

This is a recycled idea from a 2012 article, but Cencosud is one of the best ways to play Latin America and a growing middle class and disposable income. The company has a retail presence in Chile, Argentina, Brazil, Colombia, and Peru.

In the first quarter, Cencosud reported aggressive expansion, including the opening of 41 more stores. The company ended 2013 with 1123 stores, made up of supermarkets (922), shopping (48), home improvement (89), and department stores (83). Cencosud is also strong in financial with credit cards related to its stores and a retail banking outlet called Banco Paris.

Shares of Cencosud trade in the middle of their 52 week range. Over the past year, shares are down 28% due to weakened performance in Argentina, where inflation is rising. The company also has high debt at $5.8 billion, compared to a market capitalization of $9.5 billion, that may also be hurting the prospect of investors.

ETF Pick: iShares MSCI Chile (BATS:ECH)

Chile is seeing GDP growth of around 5% annually. The country's GDP per person continues to rise into the $21,000 range and more people are seeing disposable income rise. This is one of the best reasons to invest in Chile.

This ETF is the purest way to play the country, with 94% of assets invested in Chile. The ETF launched in 2007 has over 4320 million in assets. The number one holding is Falabella, which is the largest retailer in South America by market capitalization. Like Cencosud, Falabella is focused on growing its store count in neighboring countries like Brazil, Argentina, Peru, and Colombia. The iShares fund has four business segment which represent 16% or more each. Consumer segments combine for 24% of the fund's total assets.


Group C

Stock Pick: Avianca Holdings (NYSE:AVH)

Avianca Holdings operates several airline subsidiaries in regions like Colombia, Ecuador, Peru, El Salvador, Costa Rica, and Honduras. Together, the subs make Avianca the third largest airline in South America. The common theme there is that four of those countries are all participating in the World Cup, which could mean increased passenger capacity in the second quarter with fans traveling the short routes to Brazil.

In the first quarter, Avianca had lower revenue and lower passenger revenue, which is of concern. However, the company is focusing on transitions and "long term growth". Avianca is seeing higher capacity and cargo revenue due to additional larger aircraft. The company will also see a new route of Bogota to London kick off on July 3rd, which showcases long term international route growth.

Avianca earned $0.27 per share in 2013 and estimates for the next two years show bullish growth. In fiscal 2014 and fiscal 2015, analysts see earnings hitting $1.09 and $2.02 respectively. This gives shares relatively cheap price to earnings ratio of 15 and 8 respectively. Shares of Avianca trade in the middle of their 52 week range. The shares are up 10% in 2014 and 20% from their November IPO.

My last airline pick, Hawaiian Holdings (NASDAQ:HA), has more than doubled since my recommendation. I see a similar thing happening here with a stock that could gain 50% with a current low price to earnings, increasing plane upgrades, and more international flights.

ETF Pick: Market Vectors Colombia ETF (NYSEARCA:COLX)

Only two ETFs provide great exposure to Colombia and both hold around 70% of assets in the region. This is my ETF pick, because it is the cheaper expense ratio and with 28 holdings has more stocks represented.

This Market Vectors ETF is nicely represented by financials (25%), energy (20%), materials (16%), and utilities (14%). The holdings trend towards large cap, which is 46% of the fund's holdings. Colombia is seeing a GDP growth rate of around 4 to 6% annually, which makes it one of the key places to invest in South America.


Group E

Stock Pick: Kinross Gold (NYSE:KGC)

Shares of Kinross Gold have fallen 39% in the last 52 weeks. This gold miner actually saw revenue and earnings hurt from the Ecuador region. Kinross had a project in Ecuador, but pulled out due to heavy taxation by the country. Reports are coming in that Kinross is set to get at least $300 million back from its Ecuador stake, after taking a write down of $720 million.

Kinross has projects in several companies and as of the end of 2013 had proven and probable reserves consisting of 42.8 million ounces of gold, 44.8 million ounces of silver, and 1.4 billion pounds of copper. With gold at $1260 an ounce and silver at $20 an ounce, Kinross has some valuable assets.

In the first quarter, Kinross reported 664,690 ounces of gold and turned in revenue of $817.4 million. This was a decline from the prior year, but cost per ounce did decline, generating higher margins. The company sees 2014 production as 2.5 to 2.7 million ounces of gold. Cost per ounce is estimated to come in as $950 to $1050 per ounce of gold.

Shares of Kinross trade close to 52 week lows and trade with a market capitalization of $4.5 billion. Analysts see the company earning $0.18 per share in the current fiscal year and $0.21 in fiscal 2015. Revenue is estimated at $3.4 billion this year, and $3.3 billion the following year, which is declines of 10% and 4% respectively.

ETF Pick: iShares Global Metal & Mining

Ecuador recently announced it was changing its mining laws. The country will provide new tax incentives that it hopes will lure foreign investment. There were no foreign investments for mining last year, and only one Chinese company has an active investment. This comes as mining is currently one of the highest taxed businesses, as the government gets 51% of revenue.

With higher mining operations in Ecuador, this global mining ETF is the way to play Ecuador. The fund has 262 holdings and BHP Billiton is the top holding. Europe represents 35% of assets, while Australia (19%), and the United States (14%) also make high representations.


Group D

Stock Pick: LATAM Airlines (LFL)

This is a small selection towards Uruguay (flights in Montevideo, Punta Del Este) and more of a piggyback on Brazil and the South America market. The huge airline, the result of a merger, is the largest in South America in terms of passengers. The company has a market capitalization of $7.7 billion and continues to see synergies and opportunities from its merger.

For fiscal 2013, the company saw 50% of its revenue from international markets, 34% from Brazil, and 16% from SSC Domestic. The company has a huge share of 40% in the Brazil market. This is a great airline pick for high growth and the incoming tourism to Brazil, via the World Cup and Olympics

ETF Pick: None

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.