Americas Still Rife with Opportunity

11/01/2011 8:30 am EST


Rudy Martin

Editor, Investing Insight

While Europe, the US, and China steal the headlines, Latin America continues to strengthen from Mexico to Chile, writes Rudy Martin of Latin Stock Investing.

One of the few truly reliable maxims of investing is that markets can live with good news and with bad news, but that they hate uncertainty. And last week, stock markets worldwide reacted positively as a major area of international uncertainty eased a bit.

Over the past two weeks, the economic picture of Europe has been steadily gaining clarity. It isn’t pretty by any stretch of the imagination. But more and more it seems as if politicians, central banks, equity investors, and bond mavens now have finally been gaining a clearer handle on the reality and ultimate consequences of southern Europe’s financial problems.

At the same time, several third-quarter earnings reports, coupled with a scattering of mildly favorable economic bulletins, indicate that the probability of a double-dip recession in the United States has diminished.

All the above represent positives—or, at the very least, inhibitors of negatives—for the export-intensive economies and securities markets of Latin America. Below are a handful of companies to watch in coming weeks:

LAN Airlines SA (LFL)
The Chile-domiciled airline group reported a significant improvement in its third-quarter earnings, following a surprisingly weak second quarter. LAN expressed confidence it can remain highly profitable in the fourth quarter and calendar 2012, despite the challenging global market conditions.

LAN’s planned merger with Brazil’s TAM, which will now almost certainly be completed in March of 2012, further improves the group’s medium to long-term outlook. The merger will give LAN access to Brazil, the region’s largest economy by a wide margin and one of the world’s largest emerging markets.

LAN turned a net profit of $94.5 million in the third quarter, and an operating profit of $161.2 million. While still representing an 11% drop in net earnings compared to the year-ago quarter, the performance was far better than the second quarter of 2011, when LAN saw its net profit tumble by 74% to $16 million.

LAN’s operating margin, which in recent years has been one of the highest in the global airline industry, also returned to a respectable 10.8% in the third quarter, compared to an unusually low 4.2% in the second quarter.

Total revenues for the third quarter of 2011 reached $1.49 billion, compared to $1.15 billion in the third quarter of 2010, due to a 32.6% increase in passenger revenues and a 22.5% increase in cargo revenues..

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Vale (VALE)
The world’s largest miner of iron ore blamed weakness of the Brazilian real relative to the US dollar for an 18% decline in its third-quarter earnings from the same period a year ago.

Vale’s net profit for the quarter ended September 30 was $4.9 billion, down from $6 billion for the same period a year ago. The firm’s third-quarter operating revenue of $16.7 billion was 9.1% above the $15.3 billion posted in the second quarter of this year.

Fomento Economico Mexicano (FMX)
The Mexican beverage and retail company, better known as Femsa, achieved a net profit of 5.90 billion pesos ($449 million) for the third quarter, an improvement of 16.6% over the year-ago period.

The company said net majority income, which excludes minority interests, grew 7.6% versus a year ago to 4.24 billion pesos, for earnings per share of 1.18 pesos (and 86 cents per American depositary receipt).

America Movil (AMX)
Regulatory changes have opened the door for the Mexican telecommunications heavyweight to hike its capital investment plans for offering pay TV there, along with mobile, fixed-line, and Internet services in Brazil. Prior to September of this year, phone companies operating in Brazil were only able to provide so-called "triple-play" services in partnership with existing pay-TV operators.

The regulatory change also means that America Movil may now raise its minority stake in Brazilian TV operator Net Servicos De Comunicacao SA (NETC).

America Movil’s consolidated quarterly revenue from the 18 markets where it operates increased about 8% from the year-ago quarter to 167 billion pesos ($12 billion). Net profit declined 21% on the year, to 18.7 billion pesos, as weaker currencies in the region affected exposure to debt in dollars and other hard currencies.

Cemex (CX)
Consolidated net sales increased by 5% during the third quarter of 2011 to approximately US$3.9 billion versus the comparable period in 2010. Operating EBITDA for the international cement firm expanded during the quarter by 1% versus the same period in 2010 to US$658 million.

“We are particularly pleased with the quarterly performance of our operations in the northern Europe and the South American, Central American and Caribbean regions,” Fernando A. González, Executive Vice President of Finance and Administration, said.

“We have also prepaid all of maturities under our financial agreements until December 2013 and proactively bolstered our liquidity needs.”

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