The Best International Stock for 2007: Embraer

Brazil. Land of beautiful women, an energy-independent economy, and one of the world's best football squads ... or soccer, to those of us in the States. And, of course, there's Embraer (NYSE:ERJ), a jet maker that has landed triumphantly here in the United States, thanks to a resurgent airline industry and creative use of regional jets for business travel.

Investors, too, have come to recognize the beauty of the business. Have a look at the love the stock has gotten from the community of Fools participating in Motley Fool CAPS:

Up, up, and away!
Surely, some of that affection derives from David Gardner's selection of the stock in the December 2004 issue of Motley Fool Stock Advisor. He reasoned at the time that its budding partnership with JetBlue (NASDAQ:JBLU) would bear fruit as the rebel airline grew. That thesis is still playing out, but global demand for Embraer's jets has sent the shares soaring by more than 50% since David's pick.

Among the jet maker's many big wins in recent months was a massive deal with China's fourth-largest airline, HNA Group, which ordered 100 aircraft going into the Labor Day weekend. Embraer also reached new heights in its home market in August, completed U.S. certification for the E175 regional jet in late September, and reported huge gains in free cash flow last week.

Soaring higher still
And the future continues to look bright, thanks to a successful push into the executive-jet market. Small-jet sales rose 35% in the first half of the year. That growth is expected to continue for much of the next decade and ultimately create a $15.8 billion global market, thanks to air taxi services. What's an air taxi? Think of a limo in the air. Instead of spending big on a first-class ticket, executives rent space on a luxurious small plane.

Along with candidates from General Dynamics' (NYSE:GD) Gulfstream, Textron's (NYSE:TXT) Cessna unit, and privately held Eclipse and Adam Aircraft, Embraer's Phenom small-jet series is earning admirers from among the budding air-taxi services. One, Magnum Jet, recently committed to purchasing 100 of the new aircraft, which will be pressed into service in early 2009.

Flying with a tailwind
Brisk demand has management projecting huge gains in plane deliveries for 2007 and 2008. Overall, Embraer could see 20% annual growth in deliveries for the next two years. Regional aircraft deliveries alone could climb by 14% a year over the same period, a pretty impressive figure when compared with the tepid demand facing the rest of the industry.

Of course, delivery gains won't exactly correlate with higher revenue, because executive jets cost far less than the bigger regional models. Still, the newer planes should lead to higher margins after the initial rollout is complete. And higher margins, in return, could juice earnings growth by 20% or better for the next two years. That seems exceedingly cheap for a stock that pays a 2.7% dividend yield and trades for just 18 times trailing earnings as I write.

Get in the game!
Many of the world's best stocks call somewhere other than the U.S. home. Which one will be the best international investment of 2007? Embraer gets my vote. Care to join me?

Sign up for our Motley Fool CAPS community intelligence database and rate Embraer to outperform the S&P 500.

And if you disagree, let us know that, too, by rating the jet maker "underperform." I won't mind. Really! Just make sure your voice is heard. Beginning early next week, our editors will be tallying all of the ratings entered into the database. The international stock that you, our readers, are most bullish about will then be declared the best choice for 2007.

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Go herefor the complete list of contenders in our CAPS international-stock tournament.

Fool contributor Tim Beyers didn't own shares of any of the companies mentioned in this story at the time of publication. Get the skinny on all of Tim's stock holdings by checking his Fool profile. Embraer and JetBlue are both selections of the Motley Fool Stock Advisor newsletter service. The Motley Fool has a disclosure policy.