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Gol Linhas Aereas Inteligentes SA (ADR) (GOL), Vale SA (ADR) (VALE): A Tour of Countries, Brazil

As the largest country in South America, Brazil offers numerous opportunities for investors looking to invest in the continent’s emerging markets. With the World Cup coming to Brazil in 2014, followed by the Olympics in 2016, investors are already watching this developing nation for investment opportunities.

Airline on sale

The slide in the Brazilian real over the past few months has affected many Brazilian companies, but few are feeling the pinch more than Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL). As an airline, Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL)’s costs are primarily denominated in U.S. dollars, while its operations in Brazil earn revenue in Brazilian reals. Due to this unfavorable cost situation, Gol shares have fallen from more than $6 each in April to the mid $3 range, where they trade today.

Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL)

But Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL) has also been cutting capacity to increase its earnings, and analysts expect EPS to turn positive again for 2014. Analysts expect further growth in EPS through at least 2015, where Gol’s shares trade at less than seven times estimated 2015 earnings. If the Brazilian economy can return to high growth, not only would Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL)’s earnings be even greater, but the market may be willing to reward the airline with a higher P/E valuation.

Mining in Brazil

Vale SA (ADR) (NYSE:VALE) is a Brazil-based mining company that has operations not only in South America but on many other continents as well. As the Brazilian markets have fallen, so has Vale SA (ADR) (NYSE:VALE), reflecting investors’ general fear of Brazilian companies.

But Vale SA (ADR) (NYSE:VALE) is still a highly profitable, diversified company that pays a dividend of more than 5%. With shares at half the level they were in 2011 and well below levels seen in 2012, there is plenty of room to recover if investor sentiment on Brazil reverses.

When it comes to earnings, analysts are all over the map, with some forecasting an earnings drop and others predicting a sharp rise. But all the analysts providing data to have price targets at least 20% above the current share price.

Fast food, Brazilian style

Fast-food chains are looking to expand their reach, and one company in Brazil is bringing some of the most popular fast-food names south of the equator. Brazil Fast Food operates such brands as KFC and Pizza Hut in Brazil, along with other brands including Bob’s, Doggis, and Yoggi, in a combination of franchises and company-owned stores.

Shares of Brazil Fast Food have been on quite a run lately, rising from the $6 range in late 2012 to $15.25 at yesterday’s close. Despite the slide in Brazilian equities this year, the company’s share price rise has been remarkably linear, with the current share price less than 10% off its 52-week high.

The potential for expansion is huge in an emerging market like Brazil. Despite recent sales declines owing partly to avian flu scares, Yum! Brands has built operations in China that rival those anywhere else in the world. While not every emerging market is the same, if Brazil Fast Food can expand into Brazil with anywhere near Yum! Brands’ Chinese success, shares could still have room to run.

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