A Sea of Tranquility in a Financial Storm

Lately I've had retail companies, financial companies, and Latin American companies on my brain.

Retailers and financials have suffered so greatly the past few months, I've been waiting to see if the carnage is nearing an end. Latin American companies, on the other hand, have been largely immune to the volatility most companies around the world have experienced.

Are we out of the woods yet?
Pick a country, and it's a good bet that its financial services companies have been hard hit in the recent market decline. The table below shows just how widespread the declines in mature markets have been.

Company

Country

Change From 52-Week High

ORIX

Japan

(37%)

Bank of Ireland (NYSE: IRE  )

Ireland

(35%)

Wachovia (NYSE: WB  )

United States

(30%)

It's a similar story in retail. J.C. Penney (NYSE: JCP  ) , a market darling just a few months ago, is now 51% off its 52-week high. On the most recent conference call for real estate investment trust Kimco (NYSE: KIM  ) , an analyst asked if the company was growing more nervous about credit markets and distressed store closings. CEO Milton Cooper cleared up any confusion: "Nothing could make me more nervous than before. No, we continue to worry about the consumer and there are certain retailers that we believe may have issues in '08."

Cooper's statement doesn't make me think that we've seen the bottom in retail quite yet. A slow economy makes growth tough to come by for financial service firms, too. That's two large portions of our economy that are struggling.

Latin America has largely bucked the trend
After decades of economic struggles, Brazil has righted itself in the past few years. The government's belt-tightening and conservative spending paid off with a stronger economy, strengthening currency, and its stock market, the Bovespa, has taken off. Beyond Brazil, even in the current financial meltdown, banks and financial services companies across Latin America have held up quite well in comparison to most markets.

Company

Country

Change From 52-Week High

Banco Bradesco (NYSE: BBD  )

Brazil

(11%)

Banco de Chile (NYSE: BCH  )

Chile

(14%)

Bancolombia (NYSE: CIB  )

Colombia

(7%)

While these banks are off their highs, all are up over the past year. Banco Bradesco is up more than 40% since the start of 2007.

That Latin America, long considered full of economic basket cases, has been a relative sea of tranquility while the rest of the world has lost its bearings speaks volumes about how the world is changing. Brazil's government is even running a surplus this year, as is Chile. There is some instability from Venezuela and Argentina, but alpha dog Brazil having its house in order is a boon for all the surrounding economies.

Kimco, which has done very well in Mexico the past five years, sees this as a great opportunity to expand into Brazil and Chile and further decouple itself from the dollar.

Foolish final thoughts
Values are going to be found as the developed world's giants become cheaper and cheaper, but the potential growth story and recent stability in Latin America should be just as interesting to U.S. investors. Add the dollar's weakness into the equation and the argument for looking at Latin America becomes impossible to ignore.

Identifying underfollowed companies with powerful long-term trends is one way we try to find market-crushing international stocks at our Global Gains international service. And that's the reason our team has traveled to South America this week. Our research trip has us visiting Brazil, Argentina, and Chile looking for the best ideas in the region. You can sign up for our research and reports live from the field simply by providing your email address in the field below.


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