Hedge Funds Still Like These Brazilian Stocks

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The economic and political turmoil that Brazil has witnessed in the last few quarters has been extremely frightening. Apart from facing its worst recession in a century and a ballooning budget deficit following the downgrade of its credit rating to junk in 2015, the country is also grappling with the loss of its image among the global investment community due to the numerous corruption scandals. The impeachment of former President Dilma Rousseff last month has brought more confusion to the table as investors are not sure whether the new government can tackle the economic crisis that the country finds itself in. However, amidst all this chaos the Brazilian equity markets has performed extremely well this year.

The IBOVESPA, which is an index of about 50 stocks that are traded on the São Paulo Stock, Mercantile & Futures Exchange, is up by over 35% year-to-date and is the best performing index so far this year among major global indices. Considering the outperformance of Brazilian equities this year, we at Insider Monkey decided to compile a list of U.S.-listed Brazilian stocks based on their popularity at the end of second quarter among hedge funds covered by us. In this post, we will take a look at the five stocks that topped our list and will analyze the returns they have generated of late.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points in our backtests that covered the period between 1999 and 2012 (see the details here).


#5 Cosan Ltd (USA) (NYSE:CZZ)

– Hedge Funds with Long Positions (as of June 30): 16

– Value of Hedge Funds’ Holdings (as of June 30): $150.78 Million

First up on our list is Cosan Ltd (USA) (NYSE:CZZ), which was held by 16 hedge funds covered in our database on June 30, down by four quarter-over-quarter, though the aggregate value of their holdings increased by $40 million during the second quarter. Shares of the transportation logistics have nearly doubled this year, but are still trading down by over 65% from the peak they made in early-2013. Analysts who track the stock think that, trading at a trailing P/E of 10.12 and a price-to-book multiple of only 0.99, it can see further upside in the coming months. Cosan Ltd (USA) (NYSE:CZZ) currently pays a yearly dividend of $0.09 per share, which translates into an annual dividend yield of 1.30%.

Follow Cosan Ltd (NYSE:CZZ)

#4 Ambev SA (ADR) (NYSE:ABEV)

– Hedge Funds with Long Positions (as of June 30): 21

– Value of Hedge Funds’ Holdings (as of June 30): $490.28 Million

The number of hedge funds covered by us which were long position Ambev SA (ADR) (NYSE:ABEV) declined by three during the second quarter, however, the aggregate value of their positions increased by $75.08 million. Ambev SA (ADR) (NYSE:ABEV)’s stock has been on a consistent uptrend since the beginning of this year and is currently trading up by 36.32% year-to-date. Since the brewing major has performed well even during dismal times and sports a healthy balance sheet, according to some analysts, its ADR represents good value at current levels for investors with a long-term horizon. However, analysts at Morgan Stanley don’t share the same opinion on the stock. On August 18, they downgraded the stock to ‘Equal-Weight’ from ‘Overweight’, but raised their price target to $6.40 from $6.00, which represents a potential upside of only 5% from its current trading price.

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