It's no secret that Latin America is one of the most
attractive regions in the world for investors. While investors
have previously invested in the region's abundant natural
resources, a rising middle class is creating opportunities for
companies that rely on domestic demand.
Thus, investors should be looking to telecoms, retailers and
Telecoms will be big winners in a rising middle-class economy
because mobile phones are becoming a necessity. Of course, the
middle class will want to shop, so certain retailers will be
especially appealing. Finally, the bustling middle class will
want to enjoy their newfound wealth by traveling.
Let's take a closer look at three of the best companies for
capitalizing on these trends.
America Movil (NYSE:
Market cap: $82.3 billion
Recent price: $22.97
52-week range: $19.01-$23.85
Payout ratio: 34%
Dividend yield: 1.7%
America Movil is the dominant telecom company in
Mexico. (Although Mexico is technically in North America,
most analysts and economists consider Mexico a big part
of the Latin American economy.) America Movil is
controlled by Carlos Slim, the world's richest man behind
Bill Gates, with a net worth of around $72 billion.
Slim is doubling down on America Movil. He is buying
8.3% stake for $5.6 billion
so that AT&T can proceed with its bid for
America Movil has a monopoly in Mexico and controls
80% of the fixed-line business and 70% of the mobile
market. The company is selling about a sixth of its
Mexican assets to bring its total market share below 50%
and appease Mexican regulators. The good news is that
these assets will likely bring in more than $10 billion,
which America Movil can then invest in its faster-growing
businesses in Brazil and Colombia.
Market cap: $2.5 billion
Recent price: $84.14
52-week range: $78.63-$126.64
Payout ratio: 22%
Dividend yield: 0.8%
Known as the "Costco of Latin America," PriceSmart uses a
membership model to offer its members rock-bottom prices
on the same merchandise that shoppers would find at a
Costco or Sam's Club. PriceSmart has 33 warehouse clubs
in 12 countries and one U.S. territory.
PriceSmart has negligible debt compared with the likes
. Its return on investment is also above both its major
peers. However, PriceSmart has grossly underperformed its
U.S. counterparts this year.
Shares have been hit hard twice this year, driven by
two straight quarters of missing analysts' earnings
estimates. Fiscal third-quarter earnings came in above
expectations -- but the company still saw a slight
sell-off due to a disappointing 1% growth in
comparable-store sales for June.
But PriceSmart's business model remains attractive in
Latin America. Most consumers in the region like to
purchase items in bulk, which has been a big factor in
why PriceSmart has achieved success in every country it
operates. About 68% of its revenue is generated from
Latin America, and another 31% is derived from the
Caribbean, with the rest from the U.S.
Recently, PriceSmart expanded in Guatemala and opened
its first location in Honduras. Later this year,
PriceSmart will open three new warehouse clubs in
Colombia, a fast-growing market for the retailer. These
are markets where PriceSmart won't have a lot of
GOL Linhas Areas Inteligentes (NYSE:
Market cap: $1.7 billion
Recent price: $6.06
52-week range: $3.04-$6.94
Payout ratio: N/A
Dividend yield: N/A
This Brazilian airline
has been a big winner since I profiled the
stock in December
. The airline has been one of the prime beneficiaries of
fans traveling to Brazil for the World Cup. Over the past
seven months, GOL is up 45%, far outpacing its
LATAM Airlines Group (NYSE:
Avianca Holdings (NYSE:
GOL Linhas has been positioning itself to continue
dominating after the World Cup. The biggest move has been
its expansion of international routes. The airline just
signed a codeshare agreement with Etihad, the national
airline of the United Arab Emirates, which means that GOL
can sell seats on Etihad flights (and vice versa). GOL
Linhas also has codeshare agreements with
Delta Airlines (NYSE:
Air France-KLM (
. It has added routes between Brazil and Chile, and from
Brazil to Argentina.
Perhaps more importantly, GOL Linhas has made
significant strides toward becoming a more efficient
airline. The airline expects to achieve a margin on
earnings before interest and taxes (EBIT) of 3% to 6%
this year and 7.5% next year. This certainly appears
doable, considering the airline had a 10% margin in 2009
and north of 20% before 2007. Its debt load and the weak
Brazilian real have crimped profits, but things look to
have turned the corner for the airline.
Risks to Consider:
One of the biggest risks to investing in Latin America is
weak domestic currencies. Even though many businesses have grown,
their results come up short after converting to dollars.
Action to Take -->
Buy shares of all three, as they are some of the purest plays on
Latin American growth. As the region prospers, these companies
should as well.
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