Annual Review — Emerging Markets Ideas

By Travis Johnson, Stock Gumshoe, February 10, 2012

Over the years I’ve shared a few “Idea of the Month” picks that are plays on various emerging markets — the most direct emerging and frontier market picks have been Lonrho in Africa, Brazil Fast Food in Brazil, and Nagacorp in Cambodia, so let’s check in with those. As with the rest of our annual checkup, I’ll list them in my order of preference and tag them with a buy, hold or sell. I do own some of these stocks, these are updated opinions based on what’s happened to a stock since I last covered it. In this case, since I still like all of these for their long-term investment potential, though like all small-cap emerging market plays they will certainly be very volatile. I’ll put them in the order by which I think they’re most appealing at these prices for expected performance over the next year or two.

Brazil Fast Food (BOBS)

Brazil Fast Food operates the Bobs burger chain and a few others in Brazil, including franchise operations for Yum Brands (Pizza Hut and KFC) and a reciprocal deal with Chile’s Doggis. They reported a bad quarter in the September quarter, not long after I shared some updated thoughts on the company (and on Brazil in general) in early November — operations were generally actually quite good in that quarter, but a bad comparison to a one-time gain in 2010 and a big tax holdback that’s still in dispute meant the quarter was reported at a loss of a few cents per share. I’m going to assume that they’re correct in characterizing these third quarter problems as one-time issues, since revenues are still growing strongly, the installed base and same-store-sales are still growing strongly (though we should remember, when reviewing same store sales in the neighborhood of 8%, that inflation in Brazil is reported to be in the 6% range), and they have two years of what I expect to be substantial growth in their installed base as Brazil preps for the Olympics and the World Cup … and continues, of course, to see its low-end consumer demand grow for small luxuries like eating out at fast food restaurants. I personally finally added BOBS to my holdings in the Fall when the stock dipped a bit, it’s only up about 10% or so since I actually bought it so I haven’t done as well as any ...

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