What's Drawing Equipment Makers to Brazil?

What's cooking in Brazil? There's something that's strongly pulling equipment makers and construction companies there. No, they aren't going there to play soccer or let their hair down in the carnivals. They are flocking to Brazil to expand their businesses.

Over the past few months, many players in the equipment industry have made a beeline for the new hot spot. It got me wondering which companies are waving their flags in Brazil and why.  Let's take a look.

Why Brazil?
Brazil's GDP growth was 7.5% in 2010, slightly lower than emerging-market superstars China (10.3%) and India (9.7%). A burgeoning middle class and low unemployment have buoyed spending in Brazil. Domestic demand continues to be robust, as is evident from the fastest monthly credit growth rate in September.

Brazil's infrastructure development got a huge boost after its government embarked on a Growth Acceleration Program (PAC 2) last year to invest largely in public works over the next few years. Throw in preparations for hosting the 2014 World Cup and 2016 Summer Olympics, and you can expect high levels of investment in infrastructure to continue.

Adding to the optimism are Brazil's investments in increasing oil production. Brazil's importance in the oil market is rising, and it is now building four diesel-powered submarines to protect its offshore oil reserves and exploration platforms.

Equally interesting is Brazil's connection with China. China is strengthening the bond with its longtime trading partner by investing $9 billion this year, thereby claiming a bigger stake in the largest South American nation.

All these factors make Brazil a very lucrative option. Its vast pool of natural resources, impressive stock market returns, and booming construction activities are solid reasons for catching investors' attention.

Who is Brazil attracting?
Equipment makers are making sure they do not miss out on the Brazilian growth story.

The best example is farm equipment giant Deere (NYSE: DE  ) . After establishing its agriculture and forestry equipment business in Brazil, Deere is now tapping the high-potential construction market. It will start building two new construction factories in Sao Paulo next year to manufacture loaders and excavators. Deere's faith in Brazil is a clear indicator of the potential this region has.

A boom in construction activities has also attracted crane maker Manitowoc (NYSE: MTW  ) , which places Brazil in top position in terms of emerging-market growth for its important crane section. After trying out India and China, Manitowoc is now building a 250,000-square-foot crane plant near Paso Fundo. The project is expected to be completed next year, and should give Manitowoc a good opportunity to tap infrastructure opportunities in Latin America.

Terex's (NYSE: TEX  ) interest in the fast-growing region is rising, too, with the company expecting the pause in government financing for its Brazilian-based road building business to end soon. Last month, it agreed to acquire a stake in Ritz do Brazil, an equipment maker for power lines.

CNH Global (NYSE: CNH  ) seems to be feeling Brazil's pull most strongly. From upgrading its plants to plans of introducing Brazil-specific products next year, the company's all geared up to party in Brazil. Last month, it joined hands with Brazilian agriculture machinery company Semeato to gain traction in the market.

Truckmaker Paccar (Nasdaq: PCAR  ) is investing $200 million in a huge assembly facility in Brazil. Construction is expected to be completed by 2013.

Further proof of the enticing quality of the infrastructure boom in Brazil can be gathered from construction company Shaw's (NYSE: SHAW  ) recent joint venture with Brazil-based manufacturer and fabricator EBSE to extend its piping systems in the region. Shaw considers this a superb opportunity to improve its competitive position in the emerging market.

And how could I not mention the Big Cat when it comes to any story on the emerging markets? Caterpillar (NYSE: CAT  ) is always excited about these markets, and has its eyes on Brazil, too, where large oil and natural gas reserve finds have fueled the demand for Cat's power solutions. Last month, it bagged a deal to provide generator sets for 16 offshore supply vessels for the Brazilian offshore market. Brazilian facility expansion and extension of its local product range are other plans brewing in Cat's mind.

The Foolish bottom line
The way Brazil is growing, these companies seem to be on the right track. But make sure to evaluate them on all fronts, not just Brazil. Use the links below to put the companies on your free watchlist, which will help you stay up to date on the companies and the countries where they do business.

Neha Chamaria does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of PACCAR. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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