Brazilian utilities: the counter-BRL play
Domestic utility plays traditionally pay relatively high cash dividends, which make them a nice play when local currencies are getting stronger and vulnerable in the opposite scenario. For example, we discussed Electrobras ( EBR , quote ) as a stock on the move few weeks ago. As the Brazilian real ( quote ) has appreciated 11% over the last year against the dollar, the relatively steady dividends that stocks like EBR pay have appreciated right alongside -- as far as U.S. investors are concerned. Naturally, any effort to weaken the real -- or any sustained domestic inflation in Brazil -- would logically erode that same dividend's value to domestic and foreign investors alike. Although a weaker real should boost the domestic Brazilian economy and encourage consumers to use more power and water, that aspect will definitely take awhile longer to materialize. Another Brazilian utility, CPFL Energia ( CPL , quote ) is priced right in line with its five-year average and has a great 7% dividend right now. The dividend is probably safe and the stock -- like EBR -- will probably perform as long as the real does not weaken below 1.74 to the dollar. Beyond Brazil, the utilities sector actually had negative performance last year in most countries - Russia was a glaring exception - but it may be a better place to play in 2011. Also, take a look at the utilities in Europe and their interest in getting a foothold on consumer growth in Eastern Europe. Exposure to Poland's relatively fast-growing consumer power markets could be a huge strategic advantage for the winner down the road. Interested utilities may include GDF Suez ( GDFZY , quote ) and EDF ( ECICY , quote ) from France, Enel ( ENLAY , quote ) from Italy and Iberdrola ( IBDRY , quote ) from Spain.