A Real Bargain in Brazil 

02/02/2010 9:17 am EST


Paul Goodwin

Emerging Markets Specialist and Analyst, Cabot Wealth Network

The recent market sell-off should eventually provide an opportunity to buy the shares of a fast-growing Brazil bank on the cheap, writes Paul Goodwin of the Cabot China & Emerging Markets Report.

There's nothing simple about the confrontation between Google (Nasdaq: GOOG) and the leaders of China, but there are lots of people who want to see it in simple terms. 

For many in the West, Google represents openness, unfettered access to information, entertainment, and community. They see China's Internet censorship as oppressive, self-serving, and hypocritical.

I would say that these people need a little perspective. The events in the US in the 1950s are a good example of the extremes to which a ruling class can go when it feels threatened by political dissent. Plus, there are plenty of people in the US today who would be quite happy to purge the Internet of all kinds of pornography, hate speech, and other content. Just because China's rulers have the will, the skill, and the resources to actually do the job doesn't make them uniquely evil.

For many supporters of China, this incident is seen in nationalistic terms. Baidu (Nasdaq: BIDU), they say, has already kicked Google around the block in head-to-head competition and Google is using this excuse to slink out of China with its tail between its legs. As for the censorship, well, "My country, right or wrong!"

I would say that people holding this position also need some perspective. A national policy that puts a government in the position of denying information to its citizens is in very bad historical company.
My stock tip for today is Banco Santander Brasil (NYSE: BSBR), a subsidiary of Banco Santander that's based in Sao Paulo. Santander is a big operation, with a market capitalization of $21.5 billion. This Brazilian bank came public at $13 last October, and after a post-IPO droop, managed to push above 14 in December and early January. But since then, BSBR has been under heavy pressure, falling along with the global finance sector.

My stock recommendations usually follow the traditional Cabot growth disciplines, so it's unusual to shout out a stock that's just fallen back toward its lows this month. But I think it's okay to put a stock on a watch list even if it's had a brick on its head for a few weeks.

Here's why.

Santander is a full-service bank with over 2,000 locations in southern and southeastern Brazil. It does commercial and wholesale banking as well as asset management and insurance. The company's third-quarter earnings were up 100% on an 84% jump in revenues, with an after-tax profit margin of 12.0%—that's registering a multiyear high. 

With a trailing price/earnings ratio of 19x and a forward price/earnings of 10x, it's certainly cheap enough.  Plus there's a hint in the chart that the stock might actually find support at $12.

Big solid company, thriving home economy, cheap stock price, small dividend—that's enough to put an emerging market stock on my Watch List. And when it shows some signs of life—well, we'll see. [Shares closed at $12.09 in New York Monday—Editor.]

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