South America: Beverages and Banks

11/16/2013 10:00 am EST


Jack Adamo

Editor, Jack Adamo's Insiders Plus

The whole South American continent is suffering from the stronger US dollar, as well as a reduction in demand for raw materials. Still, long-term prospects are excellent, due to demographic trends in the region, observes Jack Adamo, editor of Insiders Plus.

Like most South America companies, Companhia de Bebidas das Americas (ABV)—known as Ambev—is having a rough go of it. The shares are down 9.5% this year.

Most of the Latin American countries Ambev serves, with the exception of Argentina, have good debt to GDP ratios, so they should heal quickly, as the world economy gets up to speed.

That may take a couple of years, but the region has higher growth potential than the US and Europe, so it's a good place to put patient money seeking higher rewards. Buy Companhia de Bebidas das Americas up to $41.

One exception to the lackluster results coming out of South America was Banco De Chile (BCH).

For the first nine months of 2013, net interest income rose 12.3%, total operating expenses fell 0.6%, and net income rose 16.1%.

An increase in the income tax rate from 9% to 14% reduced net EPS to a 10.2% rise, which not only beat most countries in South America, it beat most North American banks. In that regard, there's not much correlation, which I like.

Banco De Chile has been quite volatile for us; however, we are up more than 11% for a two-year holding period.

That's not great money in this market, but we started with a small position, knowing the outlook for South America wasn't clear yet. For now, Banco De Chile rates a buy up to $95.

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