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June 2, 1998
Latin Issues Are Ripe
For Bottom-Fishing
By THOMAS T. VOGEL JR. and JONATHAN FRIEDLAND
Staff Reporters of THE WALL STREET JOURNAL
CARACAS, Venezuela -- Now doesn't seem a propitious moment to invest in
Latin American stocks, which is why it may be a good time for selective
bottom-fishing.
Many of last year's highflying stocks are trading at or near their
52-week lows. The stocks of a number of solid companies may have been
punished too much, say analysts. "Some of these companies deserve
better," says Juan Carlos Garcia, head of emerging-markets stock
analysis at Santander Investment in New York.
Given volatile market conditions, none of these stocks are for the
faint-hearted, and buyers should look at them as long-term investments.
They should also stick with highly liquid stocks with solid growth
prospects, analysts say. Companies with stocks listed on the U.S. stock
exchanges come first, followed by those considered benchmark issues in
the local markets.
'Flavor of the Month'
Mr. Garcia likes Brazil's Telecomunicacoes Brasileiras SA, or Telebras,
which is slated to sell off a dozen of its regional telecommunications
subsidiaries later this year. "It's the flavor of the month and the most
liquid stock in Latin America," he says. Santander expects Telebras
stock to rise more than 50% within 12 months.
Venezuela's markets have been shaken by low oil prices and the start of
presidential campaigns, but Mr. Garcia says steelmaker Siderurgica
Venezolana Saca, or Sivensa, is worth a look. "The stock's level is
absurd," he says. "This company has been overpunished," he says. Sivensa
was part of an international consortium that bought the state steel
company Sidor earlier this year.
Salomon Smith Barney's Latin America stock strategist, James Barrineau,
likes Venezuela's Electricidad de Caracas SA, or EDC, a Caracas power
company. EDC "looks cheap by virtually every measure and the utility
sector looks like it will get earning growth overall, if you close your
eyes and not worry about the presidential elections," he says.
Many of Mr. Barrineau's picks -- and those of other analysts -- come
from Mexico, where he is fond of the banking, retail and television
sectors. He expects Grupo Televisa SA and TV Azteca SA to benefit from a
flow of cash from advertisers in soccer-mad Mexico during this summer's
World Cup in France.
Mexican banks are another bold bet. Their stocks have been beaten down
in recent weeks because of the government's failure to push major
financial-sector reforms through Congress as well as by a U.S. Customs
Service money-laundering sting that implicated many Mexican banks.
Picks in Mexican Banking
Eduardo Cabrera, Latin America strategist for Merrill Lynch & Co., likes
the two giants of Mexico's banking sector, Grupo Financiero
Banamex-Accival SA and Grupo Financiero Bancomer SA. The banking rout
"is way overdone," Mr. Cabrera says.
The same holds for Mexico's largest retailer, Cifra SA. Cifra shares
have fallen more than a third year-to-date largely as a result of poor
first quarter-earnings numbers. Mr. Cabrera argues that Wal-Mart Stores
Inc., which purchased control of Cifra last year, has things well under
control, and it is a good opportunity to buy what he calls "the premier
retailer in Latin America."
Cemex SA is among the top picks for Damian Fraser, head of research in
Mexico City for Caspian Securities. The Monterrey cement giant's shares
have fallen by 17% during the past month despite healthier-than-expected
first-quarter earnings and an improving balance sheet. Cemex's stock is
trading at a discount to other Latin American cement companies.
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