As the largest country in South America, Brazil offers numerous opportunities for investors looking to invest in the continent's emerging markets. With the World Cup coming to Brazil in 2014, followed by the Olympics in 2016, investors are already watching this developing nation for investment opportunities.
Airline on sale
The slide in the Brazilian real over the past few months has affected many Brazilian companies, but few are feeling the pinch more than Gol Transportes Aereos (NYSE:GOL). As an airline, Gol's costs are primarily denominated in U.S. dollars, while its operations in Brazil earn revenue in Brazilian reals. Due to this unfavorable cost situation, Gol shares have fallen from more than $6 each in April to the mid $3 range, where they trade today.
But Gol has also been cutting capacity to increase its earnings, and analysts expect EPS to turn positive again for 2014. Analysts expect further growth in EPS through at least 2015, where Gol's shares trade at less than seven times estimated 2015 earnings. If the Brazilian economy can return to high growth, not only would Gol's earnings be even greater, but the market may be willing to reward the airline with a higher P/E valuation.
Mining in Brazil
Vale SA (NYSE:VALE) is a Brazil-based mining company that has operations not only in South America but on many other continents as well. As the Brazilian markets have fallen, so has Vale, reflecting investors' general fear of Brazilian companies.
But Vale is still a highly profitable, diversified company that pays a dividend of more than 5%. With shares at half the level they were in 2011 and well below levels seen in 2012, there is plenty of room to recover if investor sentiment on Brazil reverses.
When it comes to earnings, analysts are all over the map, with some forecasting an earnings drop and others predicting a sharp rise. But all the analysts providing data to 4-traders.com have price targets at least 20% above the current share price.
Fast food, Brazilian style
Fast-food chains are looking to expand their reach, and one company in Brazil is bringing some of the most popular fast-food names south of the equator. Brazil Fast Food (NASDAQOTH:BOBS) operates such brands as KFC and Pizza Hut in Brazil, along with other brands including Bob's, Doggis, and Yoggi, in a combination of franchises and company-owned stores.
Shares of Brazil Fast Food have been on quite a run lately, rising from the $6 range in late 2012 to $15.25 at yesterday's close. Despite the slide in Brazilian equities this year, the company's share price rise has been remarkably linear, with the current share price less than 10% off its 52-week high.
The potential for expansion is huge in an emerging market like Brazil. Despite recent sales declines owing partly to avian flu scares, Yum! Brands has built operations in China that rival those anywhere else in the world. While not every emerging market is the same, if Brazil Fast Food can expand into Brazil with anywhere near Yum! Brands' Chinese success, shares could still have room to run.
A major market
Brazil is considered one of the primary emerging markets and is included in the up-and-coming BRIC (Brazil, Russia, India, and China) countries. Gol Transportes Aereos, Vale SA, and Brazil Fast Food are just three companies among many operating in this market. Near-term economic challenges and recent civil unrest have caused Brazilian investments to fall in value, setting up a lower entry point for long-term investors.
Alexander MacLennan owns shares of GOL Linhas Aereas Inteligentes SA (ADR). This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool owns shares of Companhia Vale Ads. 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.