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”
- 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.
- Brazil is a huge food exporter and agricultural superpower.
- Has a massive trade surplus and a dollar war chest.
- “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).