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3 Top Latin American Stocks to Brave Concerns - Analyst Blog

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United Nations Economic Commission for Latin America (ECLAC) has revised its economic growth projection for Latin America down to 2.7%. This is slightly above last year's growth of 2.5%. "Lower-than-expected dynamism" in Mexico and Brazil were said to be adversely affecting the economy.

In Dec 2013, ECLAC had forecasted a 3.2% economic growth in Latin America - primarily driven by Mexico and Brazil. Recovery in the U.S. economy was expected to bolster exports of the Latin American nations and thus benefit the region.

ECLAC's projection then included a 3.5% growth for Mexico's economy, 2.6% for Brazil's as well as Argentina's and 1% for Venezuela's economy.

Now, ECLAC projects Mexico and Brazil to grow at 3% and 2.3% in 2014, respectively. While Argentina is forecasted to grow a slight 1%, Venezuela is now projected to witness a 0.5% contraction.

Forecasts from IMF & World Bank

The World Bank projects expansion by 2.3%.

The IMF believes the Latin America economy will grow by 2.5%. The recent report by IMF, titled Regional Economic Outlook: Western Hemisphere: Rising Challenges, says the economic activity in the region in 2014 is expected to "stay in low gear."

Inter-American Development Bank had projected economic growth in Latin America at 3% in 2014 and 3.3% in 2015. Acceleration in the U.S. Federal Reserve's quantitative easing plan may, however, change this best-case scenario by IDB.

True, there are certain concerns prevailing in the Latin American market. Subdued growth estimate is a worrying factor along with surging inflation rate. Possible decline in commodity prices also is a key concern.

Though the latest economic forecasts are short of previous projections at the beginning of the year by ECLAC, all, except Venezuela, suggest an expansion. So, there is some opportunity to invest in the Latin American market and earn. If investors are looking for betting their bucks in the Latin American stocks, we will suggest 3 top ranked stocks that are most likely to see decent gains.

IMF Economic Forecast in Details

Key Highlights from the report:

• The financially integrated economies such as Brazil, Chile, Colombia, Mexico, Peru, and Uruguay are expected to grow at 3.5% in 2014. The key policy priorities for these nations are "careful calibration of macroeconomic policies, a clear focus on reducing financial vulnerabilities, and stepped-up structural reforms to remove obstacles to growth."

• Economic growth for the commodity exporters, Argentina, Bolivia, Ecuador, Paraguay, and Venezuela, are expected to drop to 2.8% in 2014 from about 6.0% in 2013. The IMF believes that Venezuela needs fundamental policy adjustments.

• Also, Argentina needs policy adjustments to restore economic stability. Reduced potential for global commodity prices has further aggravated this need for adjustments. IMF said the other economies should also control public spending.

Let us take a look at the chart, showing IMF's 2014 and 2015 growth forecasts for some Latin American economies:

Nation Projections(annual real GDP % growth) Previous Growth
2014 2015 2012 2013
Argentina 0.5 1.0 1.9 4.3
Brazil 1.8 2.7 1 2.3
Chile 3.6 4.1 5.4 4.2
Ecuador 4.2 3.5 5.1 4.2
Paraguay 4.8 4.5 -1.2 13
Uruguay 2.8 3.0 3.9 4.2
Venezuela -0.5 -1.0 5.6 1.0

Source: IMF staff calculations and projections

Venezuela is thus projected to suffer the most. A key reason for this is the nation's booming inflation rate. The nation recorded an inflation rate of 56% last year and IMF believes it may move up to 75% this year. Separately, IMF believes Brazil's economy may continue to face headwinds from a "loss of competitiveness and low business confidence."

Growth in Sight: 2015 A Year for Rebound

Both IMF and World Bank are hopeful of situations turning better in 2015. They expect a rebound next year propelled by improved global economy. Weaker Latin American currencies will also boost the exports. Moreover, economic reforms in Brazil and Mexico are expected to attract huge investments.

Positive Factors

The Russia-West standoff may trigger more dollar inflows into Latin American markets. However, this will be a short-term phenomenon.

Recently, Chinese Foreign Minister Wang Yi completed a week-long tour to Latin America and offered promise of improved economic and trade cooperation among China and Latin American nations .

China may be looking forward to invest infrastructure projects. In fact, Minister Wang Yi hinted at China's intention to build a fund that would boost investments in "infrastructure-lacked Latin America."

Venezuela is expected to become biggest oil seller to China . Venezuela President Nicolas Maduro said the nation may export 1 million barrels of oil every day to China. Argentina and Chinahave also agreed to boost their trade cooperation on projects including agriculture, science and technology, infrastructure construction, energy, and finance.

Mexico offers hope in the form of lower-than-expected unemployment numbers in February and controlled inflation rate. Also, the revival in US economy will benefit Mexico significantly as it is an export oriented economy. The US is Mexico's largest trading partner.

As for Brazil, there may be several negatives in the short term. Nonetheless, Brazil remains an important investment destination . Endowed with large natural resources and a skilled workforce it has the potential to grow its exports significantly. More importantly, Brazilian stocks are still trading at low prices and offer great value to investors.

3 Latin American Stocks to Buy Now

Grupo Financiero Galicia S.A. ( GGAL ) is an Argentina-based financial services holding company. The company provides financial products and services that range from collection and payment services, commercial credit cards to transactions, loans, and investments. It also offers services related to mutual funds and managing foreign currency and government securities positions among others.

GGAL holds a Zacks Rank #1 (Strong Buy) and has expected current quarter earnings growth of 19.79%. The forward price-to-earnings ratios (P/E) for the current financial year (F1) is 6.15. The stock has returned 32.6% year to date.

Embraer SA ( ERJ ) is headquartered in Brazil and it develops and sells jet and turboprop aircrafts. These are sold to Brazil, North America, Latin America, the Asia Pacific, Europe and international defense aviation markets. The company recently reported better-than- expected result boosted by strong defense and executive jet deliveries. Going forward, Embraer expects 2014 revenues to increase slightly from 2013 levels on the back of its Defense & Security and Executive Jets segments.

ERJ holds a Zacks Rank #1 (Strong Buy) and has expected current quarter earnings growth of 10.44%. The forward price-to-earnings ratios (P/E) for the current financial year (F1) is 14.38. The stock has returned 8.5% year to date.

Itau Unibanco Holding S.A. ( ITUB ) is a Brazil-based financial products and services provider. It recently reported improved year-on-year performance, primarily on the back of reduced expenses for provision of loan and lease losses and increased managerial financial margin along with higher banking service fees and income from banking charges. Going forward, it expects 2014 loan loss provision net of recovery to range from R$13 billion ($5.6 billion) - R$15 billion ($6.4 billion). Total credit portfolio is expected to increase in the range of 10% - 13%. Efficiency ratio is expected to improve 50 to 175 basis points.

ITUB holds a Zacks Rank #2 (Buy) and has expected current quarter earnings growth of 34.48%. The forward price-to-earnings ratios (P/E) for the current financial year (F1) is 10.94. The stock has returned 23.9% year to date.

EMBRAER AIR-ADR (ERJ): Free Stock Analysis Report

GRUPO GALIC ADR (GGAL): Free Stock Analysis Report

BANCO ITAU -ADR (ITUB): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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