Banking on Brazil — Part Two

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Look back at the five- and ten-year charts of almost any "top three" bank in a fast-growth emerging economy and you’ll find several five and ten baggers. Today, a relatively small number of citizens in fast-growth economies buy financial products. But as GDP-per-capita grows, the market for auto lending, mortgage, and small business loans is exploding.

This week’s Global Bull Market Alert pick, Brazil’s Banco Bradesco (BBD), is a play on this megatrend in Latin America’s largest economy. Banco Bradesco is the gorilla in the Brazilian financial marketplace. Boasting the country’s largest private customer service network that includes more than 3,000 branches and 28,500 ATMs, Bradesco was recently named Latin America’s most valuable bank brand and the fiftieth-best brand in the world.

Banco Bradesco also has been posting some exceptional financial results. In the nine-month period that ended September 30, 2007, its net income soared 73.6% compared to the same period of 2006. Total assets grew 30.6%, while its total loan portfolio rose 27%. Trading at a forward price-to-earnings ratio (P/E) of only 15, Banco Bradesco is a bargain. Finally, Banco Bradesco’s "efficiency ratio" of 41.8% puts it in a class by itself.

With all of the focus on China and India, Brazil also is one of the most overlooked, under appreciated and cheapest emerging market economies around. As I highlighted in last week’s Global Guru, Brazil has never had its economic house in better order. Both inflation and interest rates are in steep decline. For the first time ever, the domestic side of the economy is becoming an engine for growth. That’s why banks like Bradesco are now able to grow their loan portfolios more aggressively than ever before.

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Another bonus: Brazil’s currency has appreciated by 65% against the U.S. dollar since the end of 2002, significantly boosting U.S. investors’ returns. As one of the top global stock markets of 2007, Brazil has been called an "investor nirvana" by market madman Jim Cramer.

As the recent events in October have confirmed, Brazil is traditionally one of the world’s most volatile markets, and sells off quickly (and steeply) during inevitable hiccups. With that caveat, buy Banco Bradesco (BBD) at market today, and place your initial stop at $25.50. For potentially bigger upside, buy the March $35 call options (BBDCG.X).

PORTFOLIO UPDATE

Your Russian picks are having a particularly strong end-of-the-year run. Vimpel-Communications (VIP) is up 47.25% since our initial recommendation. Steelmaker Mechel (MTL) has soared 38.13% just since Oct. 15, with your options now up 170.83%. Hold on to both for now, and you may even want to add to your positions on any short-term pullback.

P.S. Join me at The World Money Show in Orlando, The Gaylord Palms Resort, February 6-9, 2008, for the opportunity to meet and hear 120+ Wall Street experts who will tell you what to buy and what to sell in 2008! Invest four days in planning and refining your 2008 portfolio by attending the 320+ workshops and panel presentations. Learn about profit-making strategies during a rollercoaster market, safe-harbor stocks, and what ETFs to buy in a market meltdown from hundreds of insightful and profitable presentations when you attend FREE! Call 800/970-4355 and mention priority code #009613 or, Register online today!

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This week offered some terrific news, as two of your Global Stock Investor holdings -- Potash (POT) and Millicom International (MICC) -- soared to record highs. Potash jumped almost 11% on takeover rumors, and Millicom leapt more than 9% as Wall Street catches on to the global cell phone megatrend.

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