“Brazilian Bank Stocks to go Ballistic” Navellier

This one will be a bit of a quickie, I’m working on a much longer one for tomorrow so we’ll see what we can churn out for you today.

The teaser comes in from Louis Navellier for his Quantum Growth service, who in typical exuberance tells us that …

“The opportunity of a lifetime is at hand and there’s simply no stopping it. Louis Navellier here and a tidal wave of U.S. pension money is about to pour into the Brazilian banking system and make you 65% to 75% richer in the next 17 days.”

The argument is probably one you’re familiar with, if you’re at all an ardent watcher of the emerging markes — Brazil’s sovereign debt just got upgraded at the beginning of this month, so now the big institutional investors have a green light to invest in the country (many pension funds and institutional investors have fairly conservative guidelines that force them to avoid, or at least underweight, some countries and some less-appealing debt).

And just FYI, I don’t know what the track record is at Quantum Growth — Navellier’s Blue Chip Growth has an excellent long term record, but his Emerging Growth newsletter has not been so hot (according to Hulbert, who does not track Quantum Growth). Navellier generally uses a quantitative screening system to pick out stocks with growing earnings, among other growth-oriented characteristics, and his active portfolios tend to be very large, with at least several dozen stocks.

Navellier gives a few reasons in this ad for why Brazil and Brazilian banks are hot hot hot …

They’re going to attract foreign investment by the truckload, from US pension funds, Middle East investors and others, now that they’ve gone “investment grade”

  1. They’re the world’s leading producer of iron, sugar and coffee … and are riding the boom in many commodities, in addition to their huge ethanol production levels.
  2. Brazil is a huge food exporter and agricultural superpower.
  3. Has a massive trade surplus and a dollar war chest.
  4. “With Brazil’s new investment rating, bankers will be the biggest beneficiaries, as the prime lenders driving the country’s economic growth.”

So what does he think we should buy?

Since Friday, our three Brazilian Bankers have delivered 13% gains in two days thanks to the S&P 500’s new ratings.
This is just the beginning. When the pension funds, mutual funds and investment bankers hop aboard in the next 17 days, you’re going to see these quick gains go ballistic.

The bankers earnings are climbing “24%, 43% and 58% over the past 90 days.”

OK … so what is it that we’re supposed to buy “in the next 17 days?”

Well, this one is actually deceptively simple … which is why it’s today’s quickie.

There are only three Brazilian banks that trade as ADRs in the US, and Navellier only recommends things that trade with high liquidity in the US.

So the three are …

Banco Bradesco (BBD)
Banco Itau (ITU)
And Unibanco (UBB)

Those are in order by size — Bradesco and Itau are both huge, near $70 billion in market cap, and it appears that UBB is the baby with a market cap about half as large. If you get into the details and start reading Brazilian filings, note that UBB is a 1:10 ADR (one ADR is ten Brazilian shares), the other two are 1:1.

I wouldn’t argue against buying any of these, but do keep in mind that they’ve had a great run — because Brazil is finally growing near its potential, and because of the recent upgrades, but also signficantly, at least for US investors, because the Real has clobbered the dollar in recent months, shooting these ADR prices up.

UBB released earnings today that looked awfully nice, and all of these trade at very nice forward PE ratios between 10-12 — you’ll pay slightly more for the two biggies, but they’re probably much more stable and predictable. UBB is cheaper on a forward basis, and probably will grow faster, but there’s certainly more of a “probably” in any assessment of them. Over the last couple years, BBD and ITU have underperformed the Brazilian index ETF (EWZ), and UBB has outperformed it. There’s an interesting comparison, though a bit old, at RealMoney if you’re interested. UBB released earnings today and the shares didn’t change much — they looked quite reasonable at a glance, but these all carry quite high expectations now.

I can’t delve quickly into the balance sheets of massive banks and tell you anything reliable, but they all look fairly appealing, as long as you assume Brazil will continue to grow and that their currency will continue to hold up well against the dollar. If you’re interested in consumer credit, you might also check out Redecard, which is Mastercard’s partner in Brazil (doesn’t trade much in the U.S., but there is probably a pink sheet symbol), and I’m sure there are others you might want to suggest to your fellow Gumshoe readers.

Full disclosure: I am invested in Brazil, but not in any of the names mentioned here or in any Brazilian banks (currently own shares in Sadia and Gol, and Seadrill, my favorite driller, though not Brazilian, is raking in the cash thanks to Petrobras contracts).


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20 Comments on "“Brazilian Bank Stocks to go Ballistic” Navellier"

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Big Mo
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Big Mo
May 9, 2008 7:07 am

Gumshoe,
Your Wed. write-up on VWDRY, with the “buy before Thursday” teaser, closed up $4.20 yesterday! Good sleuthing!

Doug
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Doug
May 9, 2008 9:38 am

all of these are technically in s slump at the momement, but longer term, might be pretty good.

Brian B.
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Brian B.
May 9, 2008 9:44 am

Roger that Big Mo. The addition five year contracts that nearly tripled last reporting period might have had something to do with it. I’ll second that. Good Sleuthing on VWDRY! On to this south american banking play. The dividends stink,,,on all three. Better dividends with U.S. banks and canandian QCC, ( Mark S.’s recommendation) which I’ve added to recently

SageNot
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SageNot
May 9, 2008 9:57 am

Slump Doug? http://finance.yahoo.com/q/ta?s=ITU&t=1y&l=on&z=m&q=l&p=&a=&c=bbd,ubb

Late w/b more like it, but that’s Louie for yah.

I take my hat off to these Brazilians for how they solved their fuel problems, even some of our USA farmers have bought land in Brazil, where sugar cane is used for fuel. They actually export their crude-less products.

Brian B.
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Brian B.
May 9, 2008 10:20 am

Agree with Doug, There is a slump in the prices. As with anything I invest in, there has to be a bull trend in place. The prices don’t reflect this. Good Investing!

Brian B.
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Brian B.
May 9, 2008 10:23 am

SageNot, or should I say “the Charts” don’t reflect this.

EYOUNG
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EYOUNG
May 9, 2008 10:56 am

I deal with Scottrade, and Yahoo!,,, where are you folks getting info on VWDRY? NEITHER has any history!,,, HELP!
BUT I LOVE THE GUMSHOE! Totally missed out on VWDRY, though, and that upsets me, Need a DECENT site, to catch the stuff Y! misses,,, and Scottrade, too!

Gravity Switch
Admin
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May 9, 2008 11:05 am
Hi EYOUNG … I love you, too. Most of these ADRs and informal tickers that are available on the pink sheets have very little information available through that ticker. I usually find it’s more useful to research the company using the ticker in its home market, in this case you would research Vestas on the Copenhagen exchange. You can still buy or sell through the pink sheets ticker, but you usually won’t find much data based on that ticker. Yahoo does a decent job with a lot of foreign exchanges, and you can always look up the actual website of… Read more »
Gravity Switch
Admin
11
May 9, 2008 11:06 am

Forgot, I should have also mentioned the Bloomberg.com and ADVFN both also have better data for a lot of foreign stocks than does Yahoo Finance. Not always, but often.

Pete E
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Pete E
May 9, 2008 12:18 pm

In defense of Louis Navellier. I subscribe to 3 of his letters. He put out an alert on Baidu last year the day before the earning announcentment and I bought the 105 at the money call options. It opened the next day at 136 on the way to 300 so I have a warm spot for him, his whole family and his dog ! This week he recommended ATVI. I bought the at the money calls for .40. Today they are at 4.00 following yesterday’s earnings announcnement. Keep em comming Louie !

Pete

Gravity Switch
Admin
11
May 9, 2008 12:56 pm

Nice returns, Pete! Navellier has a good reputation, and his main Blue Chip Growth newsletter certainly has a great long term record, though he’s of course not infallible. The options are your play, right? I don’t think Navellier ever recommends option trades, but I might be wrong.

His new(ish) book in the “Little Books” series is dead boring, by the way. Not necessarily bad, but not very interesting compared to some of my favorite recent investing books.

Dividends4Life
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May 9, 2008 2:04 pm

As we get the sub-prime mess behind us, the U.S. banks will rebound handsomely. I am keeping them at my full allocation.

Best Wishes,
D4L

Don
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Don
May 9, 2008 2:09 pm

Dear Gumshoe; Love the knowledge you impart. Look forward to it every day. I use Scottrade, and had already been following these three after a Fast Money recco by Seymour on 4/30. Scott reports Market Cap to be in $32-34b for all three, with UBB being the largest. Where are you getting the $70b figure for BBD and ITU,from? Just curious. Thanks

Gravity Switch
Admin
11
May 9, 2008 2:41 pm
How strange. Now that you mention it, I see different values in a few different places. I had been going off of the data from Yahoo and Barron’s. I just checked the last earnings release, and BBD reported that they had a market cap of 104 billion Real, which would translate to about $60 billion … that was in April, so I think the near-$70 billion is probably the right number. There is often confusion with data like this for foreign stocks, and I do get them wrong on occasion, but I think I’m right this time, but I didn’t… Read more »
JScott
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JScott
May 9, 2008 9:28 pm

Pete E., or anyone, do you think Navallier gets inside info? Knowing quarterly results beforehand, and this deal about pension money going into the Brazlian banks….. Just how good is his record? Thinking of subscribing.

olenska
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olenska
May 9, 2008 9:34 pm

on longterm charts all three of these banks are done. maybe that means the real is done for now too. they might be good shorts though

olenska
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olenska
May 9, 2008 9:36 pm

ps the yield is the giveaway. a yield on a bank stock of .4% is just not tempting

Gravity Switch
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May 9, 2008 9:53 pm

Jscott, I’m sure he has no inside info on earnings (which would be illegal and get lots of SECOND attention, Navellier is quite high profile), just quant models that target earnings momentum. Often works well, but he doesn’t “know” the earnings result beforehand. The pension fund stuff is just an extrapolation of the debt upgrade, which was well reported.

JScott
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JScott
May 10, 2008 1:48 am

Thanks for your reply SG. And thanks for this rockin blog…just came across it a few days ago and I’m totally hooked.

Re: the Navellier thing, where do you think the 17 days comes from?

And can you explain “quant models that target earnings momentum”….or point me to a website that talks about it?

Gravity Switch
Admin
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May 10, 2008 6:50 am

It essentially just means that he mines the data for patterns that suggest to him that a stock will be a fast grower. The data are both stock fundamentals (earnings growth, sales growth) and market-related (volume, analyst ratings changes, earning surprises), if I remember correctly. His book, the Little Book that Makes You Rich, explains it pretty well (though it’s boring, I’m afraid), and his website gives access to his basic “stock grader” database for free (Navellier.com).

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