Markets

Brazil's Economic Activity Hits Fastest Pace in 8 Years: 4 Picks

In a clear sign that Brazil's fortunes have changed, the country's economic activity increased at its sharpest pace in eight years during February. As the country emerges from a two year long recession, it has succeeded in attracting the attention of international investors. Allegations of widespread corruption in the government have been largely ignored in favor of rising expectations for upcoming reforms.

On Tuesday, the IMF joined the chorus cheering Brazil on its new found economic success by raising its growth projection for the next year. Given these developments, adding Brazil stocks to your portfolio makes for a prudent option.

Economic Activity Highest Since 2010

On Monday, Brazil's central bank revealed that the BC-Br index of economic activity has increased by 1.31% in February. This was the index's best showing since 2010 and a significant improvement from the upwardly revised increase of 0.62% in January. Additionally, output increased by 0.48% after falling by 1.24% in January. Speaking in Brasilia, Brazil's finance minister Henrique Meirelles said the economy is likely to improve further by the end of 2017 even as growth rate becomes "meaningful."

Monday's data reinforces the view presented by job numbers released in March. According to data released last month, Brazil's economy experienced 35,612 job additions, marking the first monthly gain since Mar 2015. This report acquires greater significance considering the recent recession triggered a 12.6% increase in the unemployment rate.

IMF Raises Growth Forecastfor 2018

On Tuesday, the IMF increased its 2018 GDP forecast for Brazil from 1.5% to 1.7%. Earlier this month, Brazil's central bank had reduced its benchmark Selic rate by 1% to 11.25%, its sharpest cut in almost eight years. Market watchers expect such an accommodative monetary policy to continue until 2018, by which point the rate will hover between 8-8.5%.

Meanwhile, investors have chosen to ignore a corruption scandal dominating the country's headlines for some time now. Recently, Brazil's Supreme Court has ordered a series of investigations into these allegations. These enquiries are likely to target the entire political spectrum, including a sizeable portion of President Michel Temer's cabinet. But investors still believe that Temer will be able to execute his proposed reforms. The sluggish pace of investigations is likely to aid the government in this enterprise.

Our Choices

The bullish nature of recently released economic indicators signals that Brazil's economy is on an upward curve. Such a view is buttressed by an increase in the iShares MSCI Brazil Capped ETF EWZ , which has increased 11.8% year-to-date.

Picking Brazil stocks looks like a smart option at this point. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.

Cosan LimitedCZZ is engaged in the cultivation, harvesting and processing of sugarcane, which is the main raw material used for producing sugar and ethanol.

Cosan has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 34% over the last 30 days. The stock has returned 51.9% over the last year, easily outperforming the Zacks Agriculture - Products sector, which has gained 18.1% over the same period. The stock has a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Itau Unibanco Holding S.A.ITUB together with its subsidiaries, provides a vast array of credit and other financial services to a diverse customer base of individuals and companies in and outside Brazil.

Itau Unibanco has a Zacks Rank #2 (Buy). Its expected earnings growth for the current year is 11.8%. Its earnings estimate for the current year has improved by 1.2% over the last 30 days. The stock has returned 48.4% over the last year, outperforming the Zacks Banks - Foreign sector, which has gained 13.1% over the same period.

Banco Bradesco S.A.BBD offers banking services and products to individual and business customers.

Banco Bradesco has a Zacks Rank #2. The company has expected earnings growth of 5.6% for the current year. Its earnings estimate for the current year has improved by 1.4% over the last 30 days. The stock has returned 48.4% over the last year, outperforming the Zacks Banks - Foreign sector, which has gained 13.1% over the same period.

Ultrapar Participações S.A.UGP is one of the largest distributors of liquefied petroleum gas in Brazil and a leading producer of petrochemicals.

Ultrapar Participações has a Zacks Rank #2. The company has expected earnings growth of 6.6% for the current year. Its earnings estimate for the current year has improved by 4.7% over the last 30 days. The stock has returned 11.4% over the last year, underperforming the Zacks Oil And Gas - Production And Pipelines sector, which has gained 15.7% over the same period. This provides a good opportunity to buy the stock given that there is significant upside potential

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Banco Bradesco SA (BBD): Free Stock Analysis Report

Itau Unibanco Banco Holding SA (ITUB): Free Stock Analysis Report

Ultrapar Participacoes S.A. (UGP): Free Stock Analysis Report

Cosan Limited (CZZ): 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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