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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (34605)	5/12/2008 5:06:02 AM
From: elmatador	Respond to of 217659

Many Brazilian equities are undervalued against their peers. Add in the commodities story to the recent S&P notch-up, and things look good for many Brazilian equity names: While shares of New York-traded Brazilian blue chips such as oil giant Petrobras (ticker: PBR) and mining-company Vale (RIO) have been rising, the food sector appears in an even better position to rally, as agricultural products continue benefiting from powered-up pricing and global demand. online.barrons.com Food companies Sadia (SDA) and Perdigao (PDA) are listed in New York, too. But Marfrig (MRFG3.Brazil) and JBS (JBSS3.Brazil), both international beef companies, are not -- and their growth opportunities are better than for overseas competitors like Tyson Foods (TSN), says Credit Suisse analyst Marcel Moraes. "Take Marfrig, for example. It's trading at way lower multiples than its U.S. peers," he says. Its '08 price/earnings multiple is 17.8 times, and projected at 12.1 times in '09, while Tyson's is 38.3 and 16.6 times, respectively and Smithfield Foods (SFD) is 25.7 and 19.6 times. Marfrig is "a discount stock with stronger growth opportunity and higher growth rates, because they are not entirely dependent on the [domestic] economy," Moraes continues, adding: "It's a good entry time for buying these stocks." As well, he points out that the Brazilian Development Bank, BNDESPar, has expressed interest in financing consolidation deals for food companies. "We are going to start seeing a structural change in the valuation of these companies," Moraes said. Meanwhile, Felipe Cunha, head of research at Brascan in São Paulo, sees benefits for lesser-known names with new-found access to credit in a hot commodities market. "If I was to choose a company that would benefit from investment grade, it wouldn't be Petrobras. It's already fairly valued," Cunha says. His biggest worry is the dollar. More dollars entering Brazil means a stronger real (the local currency), and that's negative for commodity exporters. "Investment grade legitimizes all levels of Brazil's market," affirms Nick Chamie, head of emerging markets research at RBC Dominion Securities. "It helps mid- and small-cap companies find better credit and new investors. That's the dramatic change. All of a sudden, these valuations and price-to earnings ratios can push much higher," Chamie says. "Brazil will attract more money from pension funds and insurance companies, and that will keep the real strong," adds Chamie. "It's not going to be overnight. It'll be almost imperceptible, but the flows [into equity] will become steady."