Several major sporting events, including the next FIFA World Cup and Olympics, will be soon kick-off in Brazil. This means that the economic activity will be highly stimulated, not only through the consumption generated by the events but also by strong government spending.
If Brazil´s above average GDP growth makes its companies attractive investments, the current circumstances make them even more alluring. Offering plenty of upside, Vale SA (ADR) (NYSE:VALE), a mining company; Itau Unibanco Holding SA (ADR) (NYSE:ITUB), a bank; and LATAM Airlines Group SA (ADR) (NYSE:LFL) are three interesting stocks that could stand as worthy purchases for your long-term portfolio. Let’s take a closer look:
Itau Unibanco Holding SA (ADR) (NYSE:ITUB) is the largest non-government Latin American bank. After proving resilient in tough economic patches, the firm looks poised to deliver strong returns on equity. A product of a merger between Itau and Unibanco, the bank seems to possess the best qualities of each one of its parts: Itau´s efficiency, cost effectiveness, and strong management and Unibanco´s underwriting standards, which result in lower nonperforming loan rates.
The conglomerate holds leading market shares in virtually all of its product offerings, including credit cards and investment banking. Its presence is not limited to Brazil, but rather widespread through Latin America. Over the next few years, the company could become a regional giant, expanding through strategic acquisitions; one thing is sure, Itau Unibanco Holding SA (ADR) (NYSE:ITUB) has the money to support this strategy. Diversification in its product portfolio is also expected to drive top-line growth over the next few years.
Although many investors are concerned about inflation and currency depreciation in Latin America impacting Itau Unibanco Holding SA (ADR) (NYSE:ITUB)’s income, its history suggests that the bank will be able to navigate such circumstances while remaining profitable and keeping a strong balance sheet. Moreover, profitability will be boosted by a decreasing risk in its loan portfolio.
Trading at less than 6 times its earnings, about half the industry average, while offering compelling growth prospects, strong capitalization and liquidity, and increasing returns, I’d recommend buying this stock for the long-term; the upside potential is wide, but so is the safety margin.
Forget about Rio Tinto
Although many analysts recommend staying away from the mining sector at the moment, Vale — a Brazilian company that holds the most valuable iron ore franchise in world — deserves a closer look. Despite being a diversified mining enterprise, its focus is clearly set on its iron ore business, which contributes with 70% of sales and 90% of EBITDA. Going forward, management will allocate most of its resources at maximizing the value of the firm´s iron ore assets. As a result, analysts expect average annual EPS growth rate of 21%-22% over the next five years, comfortably outperforming its peers (Zacks Estimate).
However, Vale SA (ADR) (NYSE:VALE)’s subsidiary business segments are also important and deserve to be mentioned. The firm is the second largest nickel producer in the world and holds other mining assets, like coal, that have been registering consistent increases in production.