Flying Under The Radar, But Don't Sleep On Peru
Tickers in this Article: BVN, BAP, NEM, EPU, EWZ
It seems that when it comes to investing in South America, Brazil gets most of the attention. That's understandable. Brazil is the continent's largest economy by far and has the most stocks trading on U.S. exchanges. Argentina and Chile are next on investors' South American shopping list, as they have progressive governments and economies that are fairly reliable by the standards of Latin America.
After that, the pickings are kind of slim when it comes to finding South American stocks trading on major on U.S. exchanges, and that means countries like Peru get lost the South American stock shuffle. To be sure, Peru doesn't have a lot of stocks trading on major U.S. exchanges (just one exchange traded fund (ETF) and two NYSE-listed stocks), but that doesn't mean this is a country without opportunity for U.S. investors. Quite the contrary. Whether its on the back of Brazil's surge higher or on its merits, Peru has delivered some nice returns to those investors that have cared to notice in 2009.
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While it trails the iShares MSCI Brazil Index (NYSE:EWZ) in returns over the last three months, the newly minted iShares MSCI All Peru Capped Index (NYSE: EPU), the only U.S.-listed ETF tracking Peruvian stocks, is up nearly 40% since its inception in mid-June. With that, let's have a look at the two Peruvian stocks trading on the NYSE.
Credicorp Ltd. (NYSE:BAP) Forward P/E: 12; 52-week change: 95%
Compania de Minas Buenaventura (NYSE:BVN) forward P/E: 16; 52-week change: 130%
Banking on Peru
Credicorp owns Banco de Credito, Peru's largest bank and its ADRs are up nearly 60% year-to-date. Flat GDP growth in Peru for 2009 might be a drag on Credicorp's earnings in the near-term, but with 2010 GDP forecast to surge to 5% in 2010, Credicorp should reap the benefits of Peru's rapidly expanding economy. The bank's portfolio growth is expected to be triple that of Peru's GDP growth, and that would likely boost the shares, which are already close to their 52-week high.
Credicorp has a five-year annualized return of 42% and an average earnings growth rate of 34% over the same time. Getting performance like that at just 12-times forward earnings is practically stealing and a profit margin that hovers around 20% is nothing to sneeze at. Factor in a decent $1.50 per ADR annual dividend and it might be time to bank on Peru.
Good Luck Mines
That's the English translation for Minas Buenaventura, and if ever there was a stock benefiting from the rapid run-up in precious metals prices, it is Buenaventura. Peru is actually the seventh-largest gold producer in the world, with annual production of around 160 million tonnes. Worldwide gold demand rose to $102 billion in 2008, and it's safe to assume that number will head higher in 2009, given what the gold market has been showing us lately.
In addition, global silver demand rose 2.5% in 2008 and Peru was the leader there, producing 118.3 million tonnes of silver. Buenaventura is currently engaged in a partnership with U.S. mining firm Newmont Mining (NYSE:NEM) at Peru's Yanacocha mine and the two companies are also working on another mining project that could yield as much as 100,000 tonnes in annual gold project starting in 2010. In addition, Buenaventura is working on another project independently that could garner similar gold production results in 2011. The investment thesis with Buenaventura is simple: If precious metals demand remains robust, this stock is going higher.
The Bottom Line: Plenty of Long-Term Potential
The biggest near-term challenge facing both Buenaventura and Credicorp is that they might be a tad overbought as both are fairly close to new 52-week highs. That said, applying a "buy on pullbacks" approach could net you some good entry points on two stocks with immense long-term potential. (To learn more, check out our ADR Basics Tutorial.) |
