Looking to expand your portfolio into Latin America? Heiner Skaliks of Strategic Latin America Fund has you covered. His firm's "on the ground" approach ensures he knows what's happening on regional and local levels. And lucky for us, he's sharing his thoughts on the most promising trends.
Equities vs. fixed income
Today the boutique firm is invested 65% in fixed income and 35% in equities, although numbers fluctuate almost daily depending on opportunities that present themselves in the regions between Mexico and Argentina.
When asked why Latin American equity investments were so low, Skaliks told Kapitall, "We think the market grew too fast too quickly. The opportunities for pleasant surprises are not there as abundantly as they were last year, but there are still attractive opportunities on the fixed income base."
But don't be discouraged, many Latin American equities are still poised to benefit.
Growing Latin markets
Consumer staples: Latin America as a whole is growing in population and purchasing power, as evidence of a thriving middle class. Consumption per capita is also increasing.
Financial Services: Skaliks likes the financial and banking industry because they are following regional expansion and because a large population is still underserved, suggesting the market has ample potential for growth.
Columbia and Peru, explains Skaliks, are growing more stable economic industries that are promising for equities. "They benefit from favorable reforms recently put in place and expansion plans from companies within these countries. Their foreign exchange looks good too." Mexican equities are also appealing because of their close ties with the US economy.
Infrastructure is key
Skaliks indicated one trend that stuck out among others: rapid infrastructure growth. The thriving economy means development of roads, housing, telecommunication, etc., is in great demand across the board.
If you look at Latin America as a region, not a collection of countries, you can quickly comprehend the problem. The region is gigantic and the increased flow of goods and services has strained existing infrastructure.
"It would take about five days to drive from New York to Los Angeles, to drive the same distance across Latin America might take two weeks." For many, flying is the best solution. "Transportation has been promising. Airlines are starting to grow in terms of passengers as well as cargo size."
Business section: Investing ideas
Skaliks ends on a note of optimism: "The region has evolved in a good way and matured significantly, it's important to dispel misconceptions from 30 years ago -- it has moved forward for the better."
Interested in Latin American equities? There are 81 Latin American companies trading on U.S. exchanges, below are 11 with EPS/price mismatches and exposure to the trends discussed above.
Use this list as a starting-off point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
1. Coca-Cola FEMSA S.A.B de C.V.
2. Grupo Televisa: Operates as a media company in Mexico and internationally. Industry: Broadcasting-TV. The EPS estimate for the company's current year increased from 1.08 to 1.15 over the last 30 days, an increase of 6.48%. This increase came during a time when the stock price changed by 1.83% (from 20.77 to 21.15 over the last 30 days).
3. Cosan
4. Banco de Chile: Provides personal and business baking products and services in Chile and the United States. Industry: Foreign Regional Banks. The EPS estimate for the company's current year increased from 6.35 to 6.39 over the last 30 days, an increase of 0.63%. This increase came during a time when the stock price changed by 0.16% (from 94.18 to 94.33 over the last 30 days).
5. BBVA Banco Frances: Provides financial services to corporations, medium and small companies, and individuals in the Republic of Argentina. Industry: Foreign Regional Banks. The EPS estimate for the company's current year increased from 1.25 to 1.28 over the last 30 days, an increase of 2.4%. This increase came during a time when the stock price changed by -0.98% (from 6.13 to 6.07 over the last 30 days).
6. Banco Macro
7. TAM: Provides passenger and cargo air transportation services in Brazil and internationally. Industry: Major Airlines. The EPS estimate for the company's current year increased from 1.51 to 1.99 over the last 30 days, an increase of 31.79%. This increase came during a time when the stock price changed by 5.78% (from 23.2 to 24.54 over the last 30 days).
8. Ecopetrol: Operates as an integrated oil company in Colombia, Peru, Brazil, and the U. Industry: Major Integrated Oil & Gas. The EPS estimate for the company's current year increased from 4.23 to 4.6 over the last 30 days, an increase of 8.75%. This increase came during a time when the stock price changed by 7.81% (from 56.32 to 60.72 over the last 30 days).
9. Gerdau
10. Companhia Siderurgica Nacional
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Pricing data sourced from Yahoo! Finance.
