I’ve invested in and written about quite a few Brazilian companies over the years, and I own a handful of such stocks today — so with the Brazilian market taking a hit this year, I thought I’d take a quick look at those holdings.
There are two Brazilian companies that I’ve profiled as “Idea of the Month” stocks over the years, Brazil Fast Food and Cielo … and I own both, along with Brasil Foods, so I’ll focus mostly on those three — there are certainly other stocks I’ve covered for teasers over the years that have Brazilian connections, including several high-yield utility and telecom names as well as the commodity companies that dominate market coverage in Brazil like Vale and Petrobras.
My basic thesis is that I’m not too interested in owning the commodity producers in Brazil, in part because they are so enmeshed with the government that the profitability becomes tough to gauge and asset ownership always seems a bit up in the air — that’s why I haven’t owned Petrobras in many years, the government hand in that company worries me a bit, as does their relentless “at any cost” push to develop their incredibly expensive offshore discoveries (though I’m very happy to own Seadrill, which is leasing them the drillships to explore and develop those discoveries). That’s also why I am not all that enthralled with the ETF for the Brazilian market, since that ETF (the iShares Brazil index, ticker EWZ) is dominated by the few huge commodity producers and a couple large banks.
What really interests me in Brazil is the consumer. I see a country that is likely to undergo some hiccups as Chinese demand for their major exports waxes and wanes, but one that is also on excellent financial footing, with a rapidly growing domestic economy and a fine government balance sheet thanks to their decades-past restructurings. A
nd with a consumption-focused consumer, including a somewhat worrisome level of consumer debt, a large middle and upper class and a slowly rising “lower middle class,” I think the opportunity for companies that serve these emerging consumers is very compelling. Add on the fact that Brazil will play host to the world for the World Cup in 2014 and the Olympics in 2016, with all the attendant investment and development that goes along with preparing for those events, and there is ...