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Our Top Contrarian Idea: Buy Brazil Stocks



  • "Apocalyptic" headlines out of Brazil have pressured risk appetite and sentiment towards investing in the country.
  • We have a more constructive view with an expectation that the economy can recover as the COVID pandemic ends.
  • A favorable global macro environment including strong commodity prices supports a positive forward outlook for Brazil stocks which offer attractive value and significant upside.
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Brazil Economy Improves and Returns to Normal After Crisis
Photo by ronniechua/iStock via Getty Images

If you do a news search for Brazil, the headlines aren't pretty. From the ongoing pandemic to weaker than expected economic activity in recent months, the media has had a field day pushing the narrative that the situation is a "

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This article was written by

Dan Victor, CFA profile picture

Dan Victor, CFA is a market professional with more than 15 years of investment management experience across major financial institutions in research, strategy, and trading roles.

Dan leads the investing group Conviction Dossier, where his focus is on helping investors stay ahead of market trends and inflection points. Dan’s investing vehicles of choice are growth stocks, tactical exchange-traded funds, and option spreads. He shares model portfolios and research to help investors make better decisions, via his Investing Group’s active chat room.

Analyst’s Disclosure: I am/we are long PAGS, PBR, ITUB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (29)

Any thoughts on this recently?
Dan Victor, CFA profile picture
@radmarkets im still bullish.. adding :/
@BOOX Research I stumbled on the EBR chart today and think it looks like a winner, took an entry. I've been in BDORY a while and picked up GOL on friday. Going to try and brush up on some more of the names in your article ITUB and VSTA look like they've broken out. I think you will be rewarded for hanging in there. Have you looked at Chile at all?
@BOOX Research isnt returns from Brazil / EWZ weighed down massively by depreciation of real ? Real needs to find a bottom and start appreciating vs $ to make difference to returns ? am I correct?
I have recently just dip toed into HSBC GIF Brazil as a contrarian play via Fund route. I will be patient and will add if NAV keeps going down. Hope it works out. Some day Corona will end and Brazil will be back in favor. Till then accumulate silently.
whitehead1 profile picture
I like EWZ but I choae STNE and VSTA. Both have nice growth. VSTA is at 52 wk low so got to buy slowly.
Any opinion on this 2 stocks?
Dan Victor, CFA profile picture
@whitehead1 I was about to cover VSTA with an article.. looks good for a bounce.. could double from here
Thanks for this contrarian investment idea.
Two issues which may bear heavily on the future economic development have not been adressed, though:
a) Bolsonaro has criticised pricing policy of oil giant Petrobras causing an extensive change in senior management and
b) socialist ex-president Lula has been cleared of charges and is likely to run again in the upcoming presidential elections.
How do you think will these political developments impact on your optimistic investment idea ?
Dan Victor, CFA profile picture
@monnemvonne thanks for the comment. you're right that the management changes at PBR deserved a mention in the article. I try to avoid dragging too much politics into the discussion.

Any type of government interference into the private sector (quasi-state owned company) is disappointing. Still, my take is that the firm-wide financial impact from holding down domestic fuel pricing is relatively limited, and on its own did not justify the selloff in the stock that is down 30% YTD. The company continues to report record production levels and the elevated oil pricing environment still supports a strong export business. PBR should continue to be profitable and cash-flow positive this year. The stock is cheap IMO. In a scenario where the BRL can strengthen 10-20% from here, the net impact on the controlled domestic pricing may end up be neutral if the spread converges.

With Lula, it's going to be a 2022 story for sure... I'm not convinced it would be a slam dunk that he would win if he decides to run.. Its also possible any left-leaning government taking office could end up being more moderate so im going to be a bit more positive either way. lets keep our fingers crossed that the COVID pandemic passes and Brazil can recover into the second half of this year
Unfortunately Bolsonaro and Lula are leading the polls by a large margin. No reasonable candidate is close. Either candidate would be bad news to the currency, and Lula, in my opinion, would be a death sentence to the economy and currency.

If a reasonable candidate emerges to contend, i.e. Doria, then the rebound in the equities pricing would be swift.
@Flamenguista ahhh, to have the 300% return we did last time Lula came in.. Of course had nothing to do with policies, Chinese Como boom saved the day..
Mountain Marmot profile picture
Disc; long ERJ (overweight), EWZ, EWZS, PBR
Go and do likewise profile picture
Just out of curiosity, I see in the list of Brazilian companies that only 3 are down over all three time frames of 1-month, ytd, and 1 year. Two of those are in telecommunications: TIMB and VIV. Is there a reason this sector has done so badly?
Dan Victor, CFA profile picture
@Go and do likewise just keep in mind that much of the weakness is all the Brazil stocks is based on the currency depreciation over the past year. you're right they have telecoms have underperformed.. idea is that given the ongoing "recession" with higher unemployment and the pandemic limiting mobility within the country, fewer people are able to buy cell phone services and data plans.. this was a concern with $T and $VZ last year , probably a bit worse in Brazil.. but certainly an area with big upside once conditions improve
Go and do likewise profile picture
Nice article. Thanks for including a list of Brazilian stocks.
marley bro profile picture
I am a brazilian and an investor. My way of see things, not only here, but here as well: dogs bark all the time to keep you out of the garden.... ignore them. Look at the garden. There are allways good fruit even in a bad garden!
Brazil eh? How do you pronounce "kidnap" and "murder" in Portuguese?
@MoGARP : Why? That is common practise in the US also.
While Brazil may have some attraction as a high-risk investment play, the COVID situation there is far more concerning than the author portrays. Total cases and deaths are likely FAR higher in Brazil (and Mexico) than official stats due to limited testing vs the developed nations in the author's chart. The recent 17% drop in new case count is of questionable significance. There have been other modest drops during the pandemic followed by increases to new highs. IMHO Brazil is far more than 1-2 months behind the US in getting some degree of control of the pandemic. While EWZS does seem to be forming a technical base here, I do not see a quick return to meaningful economic rebound soon.
Mostly agree, but I believe it is a specific company play Vs country. Clearly some specific Co opportunities but small cap etc... may not be ready until things play out a little longer. Will revisit in 3 months from a country play, but will add to certain names like the banks and commodities.
cenc profile picture

I have been living and working in Latin America for 30+ years now. I have never seen Brazil more vulnerable. I could make a better case for an upside in Argentina or Venezuela right now, simply because they are at absolute rock bottom.

A friend, Brazilian, works in insurance summed it, "stay out of Brazil"!!!

He was just referring to the Physical danger of Brazil both due to the pandemic and the political instability brewing. 4,000 deaths officially reported today, is not even the tip of the iceberg. Many, many more people are dying "unofficially". The one super strength underwriting Brazil's resistance in recent years, lot's of young people. Well, they are dying in big numbers now with up to 6 different strains. Millions of Brazilians that were "middle class", are never going back in their lifetime to middle class.

Brazil is not behind or in front of the covid curve: THEY ARE THE CURVE.
cenc profile picture
@cenc FYI, pretty much every single country in South America is in lockdown right now, or will be in the next week; and, almost every single one has blocked Brazil and Brazilians from crossing their boarders. No way that does not put a major hole in the GDP of Brazil.
Dan Victor, CFA profile picture
@cenc the trade balance is very positive for Brazil supporting its macro outlook.. The estimate is for a surplus of $77 billion this year (nearly BRL450 billion) which is the net amount of money flowing into the country from exports that can help limit the economic impacts from COVID at the macro level while also supporting the "country credit risk". When you look at Argentina or Turkey that collapsed in recent years, they were running huge trade deficits which is a good indicator of instability. There's a case to be made that the BRL currency is undervalued by 10-20% right now. Look at the price of soybeans, the Brazilian farmers are loving it
@BOOX Research yeah but careful with thinking positive trade balance a good thing.. Want a positive trade balance? Have a depression, guaranteed nobody buying much imported goods.. Exports were down 6% last year
Michael W Byrne profile picture
Great article as always. I recently added Petrobras to my portfolio on a similar thought process to yours on sentiment which as you say, seems to be incredibly negative and you want to be greedy when others are fearful. Some of the other materials names look good as well. Didn't realize Pagseguro and StoneCo were both so far off their highs; I've owned both in the past it could be a good time to get back in. With those types of 'growth' stocks selling off eventually they could turn into new 'value' plays.
Lets hope you are right-------Brazil has been a basket case even before COVID--------the Political leadership in Brazil has been the "PITS"-----nothing ever gets done and corruption and violence are off the charts!!
Prezzo giusto profile picture
I have put quite a lot of PBR-eggs in my investment basket as i do believe fundamentals are great, valuation hyperattractive and sentiment very low.
Bill Zettler profile picture
@BOOX Research
Great idea well presented.
Dan Victor, CFA profile picture
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