International stocks continue to gain popularity as investors look to align their portfolios with emerging market economies and creditor nations. Brazilian stocks have been at the top of the list, with the South American juggernaut being fueled by a pro-growth government, booming exports and the modernization of its infrastructure.
Brazilian President Luiz Inácio Lula da Silva, otherwise known as "Lula", has led the country's pro-growth strategy, appointing the market oriented economist and former CEO of Bank Boston Henrique Meirelles as head of the Brazilian Central Bank. Lula and his administration quickly strengthened the country's relationship with the IMF by renewing agreements and paying off its debt early.
Next up was the Growth Acceleration Program, an initiative designed to free the country's economy from growth constraints. By 2008 Brazil had became a creditor nation, with its debt recently getting the nod from Standard & Poors as investment grade.
Much of Brazil's incredible growth trajectory is being driven by its strong export business as a commodities powerhouse. Brazil is the world's leading beef and soybeans exporter, and ranks high in a number of other agricultural categories like chicken, orange juice and coffee. The country's service industry is also on the rise, with new exchanges and financial services companies helping to create a more balanced economy.
An infrastructure story will be a recurring theme associated with emerging markets, but infrastructure development is literally and figuratively the road that leads a country to prosperity. In 2007, Brazil launched a four-year plan to spend $300 billion to modernize its roads, power plants and ports. The development of modern infrastructure and middle-class amenities has helped Brazil establish credibility as a progressive nation and future economic leader.
Now comes the important part, how to capitalize. One way would be to move to Brazil and invest in a textile plant or soybean farm. That actually sounds like a lot of fun, but might not be realistic for most of us. Here is an easier way; buy Brazilian stocks.
There are plenty of great Brazilian stocks that trade as ADRs on American exchanges, providing a nice dose of transparency and regulation to a less familiar investment destination. Here are four Brazilian stocks to watch.
4 Brazilian Stocks
Gafisa SA (GFA - Free Report) is a Brazilian real-estate developer. The company just reported amazing third-quarter results, with its revenue more than doubling from last year. Analysts are looking for next-year earnings of $2.79 per share, a bullish 72% growth projection. Based on the current-year estimate, GFA has a forward P/E multiple of 20X, a reasonable valuation for a company growing this quickly in the strong Brazilian economy.
Pão de Açúcar (CBD - Free Report) operates as a retailer of food, clothing and various consumer appliances. This Zacks #1 rank stock has been on a tear over the last 6 months as shares have risen in tandem with estimates. The forward P/E of 29X does look a bit pricey, but CBD looks like a solid play on Brazil's emerging consumer class and has a hefty 21% next-year growth projection to boot.
Basico do Estado (SBS - Free Report) provides sanitation and environmental services in Sao Paul, the most populous Brazilian city. As a utility, this is one of the more conservative Brazilian stocks, but that helps create a more balanced approach to the market. The Zacks #2 rank stock looks like a great value pick, trading at just 6.5X projected current-year earnings.
Petrobras (PBR - Free Report) is a name many may be familiar with as one of the more popular Brazilian stocks. This integrated energy company will be involved in some of the largest oil projects in the world in coming years as it works to tap into the deap-sea discoveries off the coast of Brazil. The next-year estimate looks solid at $3.57, a 22% growth projection.
Brazilian stocks are going to be volatile in the short-term as the economy adjusts to its rapid growth. But in the long run, Brazilian stocks stands to spice up your portfolio with the capacity to produce outsized gains.
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