Five Latin America Stocks For 2012
To say 2011 has been a lousy year for Latin American equities is to put things kindly. Inflation problems in Brazil have been a drag on the entire, but every major economy in the region has its own set of specific woes.
Mexico is heavily dependent on the U.S. for trade. Peru has faced political headwinds. Chile has been rocked by falling copper prices. Colombia has been hurt by an uptick in violence and volatile commodities.
So where we stand now is the iShares MSCI Chile Investable Maket Index Fund (NYSE: ECH) is down about 27% year-to-date. The iShares MSCI Brazil Index Fund (NYSE: EWZ) is off about 25%. The iShares MSCI Mexico Investable Market Index Fund (NYSE: EWW) is down 20%. The Global X FTSE Colombia 20 ETF (NYSE: GXG) has shed about 15% while the iShares MSCI Peru Capped Index Fund (NYSE: EPU) is the stud of the group, down “just” 10% for the year.
Acknowledging that yes, things can get worse in 2012 for LatAm stocks, we went searching for five that may just turn the corner and be profitable trades next year. Some members of the list won't be surprises while others could be considered more obscure. In no particular order...
Petrobras (NYSE: PBR): Let's illustrate how bad of a performer Petrobras has been recently and by recently we'll say the past two years. We'll use a trivia question: What is the world's worst performing U.S.-listed integrated oil stock in the past two years? Chances are a lot of folks would say BP (NYSE: BP). Not a bad guess, but the answer is Petrobras. Actually, Petrobras lags BP by a wide margin.
Issues with Petrobras include the fact it's a state-run company with a dividend that is pathetic compared to comparable U.S. and European companies. The good news is Brazil's pre-salt fields really aren't priced into this stock and should the company meet or beat production targets over the next couple of years, it will have been a steal at current levels.
Ecopetrol (NYSE: EC): Another state-run company, this time it's Colombia's largest oil giant. Year-to-date, Ecopetrol is flat compared to 30% drop for Petrobras. These days, Ecopetrol sports a dividend yield of 4.9%. That's stellar for a state-controlled company and easily exceeds the yield of any of the four largest U.S. oil companies. Colombia has ambitious oil production increases of its own in mind and the country is one only five in the world that's home to rising oil output. Plus, the yield is just too good to ignore.
Banco de Chile (NYSE: BCH): This has been a tough year for financial stocks, regardless of home domicile. The combination of bank and emerging markets stock has been especially troublesome. That said, Banco de Chile has far outperformed the Financial Select Sector SPDR (NYSE: XLF) this year. With a payout ratio of just 29%, BCH's dividend isn't straining the company and the 3.5% yield is of course far better than what you'd get with a U.S.-based bank.
Brasil Foods (NYSE: BRFS): In an environment that has put a premium on defensive investing, Brasil Foods has been of the top performing U.S.-listed Brazilian names this year, surging almost 21%. This is Brazil's biggest food company and it has a presence in other emerging markets, even Russia. Without a dividend, investors should look to buy Brasil Foods on a dip to support at $19 as the stock looks a tad overbought here.
Bancolombia (NYSE: CIB): Colombia's largest bank deserves kudos for being a decent performer among international bank stocks this year and its dividend is better than what you'll find with U.S. banks. Colombia's banking sector is expected to consolidate in the coming years, perhaps with Bancolombia leading the charge. As Colombia's balance sheet and credit ratings improve, so will Bancolombia's. The stock is probably the only remotely conservative for option risk-averse U.S. investors that still want a taste of this fast-growing South American economy.
Bull case: The U.S. economy improves mightily to help Mexican equities. A rebound in Brazil would bode well for the rest of the region. Regardless of sector, Chilean stocks would get a boost from increased global copper demand.
Bear case: Commodities prices, copper and oil in particular, plunge and investors shy away from the emerging markets altogether. Any increase in Brazilian inflation would punish the region's financial markets...again.
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