5 Brazilian Stocks for Long-Term Gains
This is an economy poised for continued strong growth.
According to the IMF, the Brazilian economy should grow 3% in 2012 and 4% in 2012. With the exception of China and India, that's the fastest projected growth rate of any of the world's top 15 economies. (Brazil is No. 7, just ahead of the U.K. and just behind Russia).
More important, 3% to 4% GDP growth is a perfect backdrop for economic stability, as inflationary pressures remain in check. The fact that Brazil's key trading partners, such as Argentina, Chile and Colombia, are likely to grow at a slightly faster pace should help Brazil to boost exports at a strong clip.
Most U.S. investors focused on Brazil rarely stray beyond oil giant Petrobras (PBR) , mining titan Vale(VALE) , airplane maker Embraer(ERJ) or the country's most popular ETF, the iShares MSCI Brazil Index Fund (EWZ) . Few realize that a wider range of Brazilian stocks also trade here in the U.S.
Here are six stocks that could deliver solid long-term gains as the Brazilian economy grows ever larger.
Banco Itau (ITUB) is one of Brazil's largest banks (along with Banco Bradesco (BBD) ) and is a major player in both consumer and corporate banking. The bank garners solid returns in all economic climates. Return on equity fell to around 20% in 2008 and again in 2010 but has otherwise been in the 30%-to-40% range over the last decade.
An expanding economy translates into rising profits: Analysts at Raymond James sees EPS (per American depositary receipt, or ADR) rising 15% to $2.38 by 2013 and up to $2.71 by 2014. They think shares have more than 20% upside to their $26 price target.
Banco Itau also shows up on a recent list of 10 Latin American Stocks Soaring Up to 30% in 2012 .
Millions of Brazilians have moved out of subsistence living and into the working class in recent years, and their rising disposable income has enabled them to buy a range of goods that run on electricity. That helps explain why utility CFPL Energia (CPL) has been able to boost revenue at a roughly 10% annual average pace over the last five years.
To handle increased demand for power, CFPL sharply boosted spending on its grid, investing a cumulative $3 billion over the last two years. That should set the stage for string free cash flow in coming years.