Brazil Olympic Stock Plays Feeling Lofty (EWZ, BRF, BZF, BBD, BRP, BTM, BAK, PDA, EBR, ABV, ELP, SID, CPL, ERJ, GFA, GGB, GOL, ITUB, NETC, PBR, TAM, TNE, TSP, VALE, VIV, VCP)

Investing into emerging markets where the Olympics are headed is supposed to be a safe bet, in theory.  Despite a flat close for stocks in the U.S. on Friday, Brazilian shares rose almost across the board Friday after last week’s decision to send the 2016 Summer Olympics to Rio de Janeiro.  It was huge for the iShares MSCI Brazil (NYSE: EWZ) gaining 1.9% to $67.30 ($26.64 to $68.50 is the 52-week range) and the Market Vectors Brazil Small-Cap ETF (NYSE: BRF) rose 1.5% to $39.76 (its 52-week range is $23.68 to $40.42).  The WisdomTree Dreyfus Brazilian Real (NYSE: BZF) currency ETF rose 0.54% to $25.89.

Outside of the ETF investing, this story becomes one where stocks may still have great growth prospects.  But if you are a value investor or one who does not like to chase stocks when they are close to yearly or all-time highs, then there is a problem.  So many of these stocks are hitting highs or are so close that you have to wonder just how much upside is there.  Using 52-week highs and all-time highs is of course not the only metric for valuations, but you might be surprised as you read through a summary of the major Brazilian stock performances on Friday alone.  Throw in the Brazilian Real currency versus the US Dollar component as these are all ADRs and it adds in yet another element.

Banco Bradesco S.A. (NYSE: BBD) is the huge Brazilian bank and its shares rose 1.8% at $19.94, with a 52-week trading range of $7.40 to $20.20 and an all-time high north of $24.00.

Brasil Telecom Participacoes S.A (NYSE: BRP) is a telecom player in Brazil and its shares rose 2.9% to $52.33, with a 52-week trading range of $22.00 to $53.49 with highs in 2007 and 2008 hitting north of $80.00.

Brasil Telecom S.A. (NYSE: BTM) is a telecommunications services provider whose shares rose 3.3% to $26.28 and its 52-week trading range is $9.49 to $26.55 and it was in the mid-$30’s in early 2008.

Braskem S.A. (NYSE: BAK), an integrated petrochemical cracker and thermoplastics producer, rose 0.66% to $12.28 and its 52-week trading range is $3.64 to $13.06, with all-time highs hitting north of $25 back in 2004.

BRF – Brasil Foods S.A. (NYSE: PDA), a poultry, pork, beef cuts, milk, dairy products, and processed food producer, was up 0.8% at $51.50.  Its 52-week trading range is $20.86 to $54.83 and its all-time high was barely north of $60 in early-2008.

Centrais Electricas Brasileiras S.A. (NYSE: EBR), the electric power producer, rose over 3% to $15.43.  Its 52-week trading range is $9.21 to $16.76 and data only goes back under one-year since its IPO.

Companhia de Bebidas Das Americas (NYSE: ABV), or AMBEV, in the beer, draft beer, malt, carbonated soft drinks, and other non-alcoholic space, rose 1.1% to $84.16.  Its 52-week trading range is $30.06 to $84.41 and this is effectively at all-time highs.

Companhia Paranaense de Energia (NYSE: ELP), or COPEL, the electric producer, rose 1.3% to $17.56 and its 52-week trading range is $7.80 to $17.71.  It came within a penny of a 52-week high during Friday’s session and briefly traded north of $20.00 in 2008.

Companhia Siderurgica Nacional (NYSE: SID), the integrated steel producer, rose 2.1% to $30.10 and the 52-week trading range is $7.87 to $31.06 and the high after its early 2008 trading was right at $50.00.

CPFL Energia S.A. (NYSE: CPL), an electric energy producer, rose 1.6% to $54.15 and its 52-week trading range is $34.93 to $57.59 and its all-time highs were over $75.00 in mid-2008.

EMBRAER (NYSE: ERJ), the Brazilian airplane manufacturer, rose 1.3% to $22.57.  Its 52-week trading range is $9.27 to $26.53 and its all-time high was just over $50.00 in mid-to-late 2007.

Gafisa S.A. (NYSE: GFA), the huge Brazilian homebuilder backed by billionaire Sam Zell, rose 5.9% to $30.18… 52-week range is $5.33 to $33.09, all-time highs over $40.00 in the last two-years.

Gerdau S.A. (NYSE: GGB), in the production and sale of steel products, was one of the biggest winners as it rose 4.8% to $13.44. Its 52-week trading range is $4.18 to $14.01 and it was north of $25.00 in mid-2008.

GOL GOL “>Linhas Aéreas Inteligentes S.A. (NYSE: GOL) was somewhat surprising that it was not up more.  The Brazilian airline carrier rose 3.5% to $10.25 and its 52-week trading range was $2.78 to $11.53, yet its all-time high back in 2006 was very briefly over $40.00.

Itaú Unibanco Holding SA (NYSE: ITUB), the credit and financial services giant, rose 0.75% to $20.17 and its 52-week high is $20.50.  All-time highs were hit in 2008 in the mid-$20’s.

NET Servicos de Comunicacao S.A (NASDAQ: NETC), a cable TV player, rose 3% to $12.11.  Its 52-week trading range was lifter Friday to $3.88 to $12.27.  Its all-time high appears to be exponentially higher back in the bubble days but more recently this was a $15.00 to $17.00 stock during 2007.

Petroleo Brasileiro (NYSE: PBR), or PETROBRAS, the giant integrated oil player, is going to trade independently from any Olympics plays even if it is the giant of giants.  Shares were up 0.6% at $44.72 and the 52-week trading range is $14.73 to $46.52.  This was north of $70 back when oil was soaring north of $100.00.

TAM S.A. (NYSE: TAM), the passenger and cargo air transportation services carrier, rose 4.6% to $13.44.  Its 52-week trading range is $5.27 to $19.20 and its highs in 2007 were in the mid-$30’s.

Tele Norte Leste Participacoes S.A. (NYSE: TNE), a telecom player, rose 0.77% to $18.27.  Its 52-week trading range is $10.17 to $21.98. Its highs in early 2008 were north of $26.00.

Telecomunicacoes de Sao Paulo S.A. (NYSE: TSP), or TELESP, a fixed-line telecom player, rose 1.2% to $24.74 and its 52-week trading range is $16.75 to $26.11.

VALE S.A. (NYSE: VALE), or the Companhia Vale do Rio Doce, the diversified metals and mining operator, rose 2.8% to $22.92.  Its 52-week trading range is $8.80 to $23.58 and it traded north of $40 briefly in 2008 when commodities were soaring.

Vivo Participacoes S.A. (NYSE: VIV), a wireless telecom player, rose a sharp 5% to $26.18.  Its 52-week trading range was lifter Friday to $7.76 to $26.44.  Its highs all the back to 2000 were north of $200 briefly and more recently in 2008 it nearly reached $30.00.

Votorantim Celulose e Papel S.A. (NYSE: VCP), a pulp and paper player, rose 2% to $15.94.  Its 52-week trading range is $3.53 to $17.46 and was north of $30 in late-2007 and early-2008.

The world recession did not kill the Brazilian economy as it did elsewhere.  It is effectively energy independent, has favorable business practices for a Latin American country, and has an economy where the middle class still has much perceived upside.  And lifting up the lower-class still offers much room for growth.  If these stocks are truly reflective of the future growth, then the old adage “Brazil is the most promising emerging market out there, and that is the best it will ever be” may be history.  If the bull has life into 2010, it should continue to support Brazil and most BRIC-investment countries.

And if these moves prove to all be too far and too fast, then these are at significant premiums on a relative basis as there many domestic leadership stocks still well under their highs of the last year and longer.  Many investors tried to make the same investment hopes in China in 2008, and many of those bets are still very far under water as the markets dealt with the aftermath of the recession.

Brazil’s estimates population is already almost 200 million, and it has a young population.  The CIA World Factbook shows 66.8% of its population in the 15 to 64 category and 26.7% in the 0 to 14 category, with only 6.4% of its people 65 or older.  Its approximate 2008 GDP was $1.93 trillion, or $1.573 trillion estimated at the official exchange rates.  But the same CIA World Factbook also shows some 31% of the population lived under the poverty line as of 2005.

We actually see much value in some of the neighboring countries, which we plan on comparing for valuation in the coming week.  Keep an eye out for that from us.


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