A Brazilian Stock Gets Real

11/02/2010 12:06 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

“Sell on the news” isn’t just for the US.

The preferred shares of Banco Bradesco (NYSE: BBD), the second largest bank in Brazil by market capitalization, dropped 4% on October 27 in Brazil, while the US-traded ADR (based on the preferred shares) fell 5.3% in New York after the company reported a 40% increase in adjusted profit that still fell short of analysts’ estimates.

The difference between actual results of 2.52 billion reais (the plural for Brazil’s real) and analysts’ estimates of 2.55 billion reais came down to an 18% increase in expenses and weaker- than-expected loan growth.

The higher expenses came as the bank expanded its customer service network and increased advertising. Loan growth came to 4.2% from the previous quarter. Outstanding credit climbed 20% in September to a record, and Banco Bradesco saw its loan portfolio expand by 19% from the same quarter in 2009. 

Perhaps most important to investors still counting the bad loans at banks around the world, the average default rate fell to 3.8% at the end of September, down from 4% in the second quarter and 5% in September 2009.

On Monday, November 1, the stock rebounded from last week’s drop, but I think there’s a good chance you’ll get another opportunity near the October 27 price or lower on volatility in emerging market shares. I’d wait for a chance to buy at $20 a share. (It traded below $22 Tuesday morning, November 2.) In the meantime, I’m putting the stock on my Watch List.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this post. As of the end of the September 2010 quarter, the fund owned shares of Banco Bradesco. You should not assume that the fund still owns a position in that stock. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund’s portfolio here.

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