Brazil is coming out of a recession and looks like an enticing turnaround story going forward, forecasts Carl Delfeld, editor of Cabot Emerging Markets Investor.

Brasil Foods (BRFS) is the largest exporter of poultry in the world and supplies food products to McDonalds, Pizza Hut and Burger King. The company is also Brazil’s largest maker of frozen microwave dinners and meats.

While the company supplies markets in Asia, Europe, the Middle East and North America, two-thirds of its revenue comes from home market Brazil. But it hasn’t been all peaches and cream. In the last year, Brasil Food’s stock fell from a high just under $12 a share to a September 2018 low of $4.65.

Why? Just about everything went wrong. The company has gone through a damaging food safety scandal and became entangled in trade disputes with China, the Saudis and the European Union, leading to some awful quarters that led to uncomfortable debt levels.

Major investors demanded change and put in place a new CEO. Pedro Parente is a turnaround expert armed with a solid plan to boost sales, reduce costs by 30% in 2019 and pay down debt. Sure enough, since September 2018, the stock has moved steadily upward through its 50-day moving average and has risen 36% against the backdrop of a strong Brazilian market.

Bottom line: Expectations are relatively low — and so, we think, is downside risk. Thus, the slightest bit of encouraging news will keep this stock moving forward with the tailwind of stronger economic growth and fresh institutional money flows into Brazil’s market. Already there are signs of a deal with China and the EU, as well as some indications of regulatory relief from the new administration.

Here is the clincher. Studies show that as incomes rise in emerging markets, diets change rapidly, with less rice and vegetables and more meat and dairy. This is a growth sweet spot and Brasil Foods is at the bullseye. The world wants its products — it just has to deliver, and we think this turnaround play has plenty of upside. You can go ahead and buy a position here.

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