3 Must Own Brazilian Stocks
Chris Preston: It’s World Cup fever with United States playing Germany today and Brazil grabbing the headlines as the current center of the soccer universe (sorry, we still call it soccer here at Wyatt HQ in Vermont).
While you might be able to make some money selling patriotic trinkets outside Rio, there’s an easier – and more lucrative — way to make money in Brazil. I’m not talking about investing in Nike, either. A number of companies will benefit from the long-term growth of Brazil’s rising middle class.
About half of Brazil’s population is now considered middle class. Only about 29% were considered upper middle-class and upper class in 2010. That number is expected to hit 37% by 2020. These more affluent consumers will be spending and borrowing more.
Ultimately, the growing middle class in the country should drive demand for wireless products, banking products and infrastructure buildup. Given that the country is still an emerging economy, it would be prudent to focus on Brazilian stocks that offer some downside protection via dividends. Here are the top three dividend stocks in Brazil:
Brazilian Stock #1: Vale SA (NYSE: VALE)
Vale is one of the leading raw material companies, selling iron ore, coal and various metals. It’s one of the largest iron ore producers in the world, and, given Vale’s global presence, it’s also a play on global growth, including the rising demand from China.
However, Brazil has made a commitment to build up its own infrastructure, including public transit, which should be a positive for Vale. Vale pays a 6% dividend yield and trades at a P/E ratio of 6.9 based on next year’s earnings estimates. Just over 10% of its market cap is covered by cash.
About 70% of its revenues are generated via iron ore production. Another 15% comes from kaolin, potash, copper and gold. Vale is Brazil’s only producer of potash and it’s the world’s third-largest producer of kaolin. Compared to the world’s other major iron ore producers, Vale is the cheapest stock. Vale trades at 1.5 times book value, while the likes of BHP Billiton and Rio Tinto trade at 2.6 times and 1.9 times, respectively.