An Emerging Market Bank Stock For Your Portfolio

| June 29, 2011 | 0 Comments

I’d bet you’re among the ranks of investors afraid of buying bank stocks right now.  And I don’t blame you… I am too.

The truth is, I’m only hesitant to buy big banks in developed nations, such as Europe and the US.  Europe is in the midst of financial turmoil and no place to put your money right now.

In the US, we never know which bank will report a huge loss due to bad loans and foreclosure losses.

With that said, I see lots of opportunity in this market to buy banks in emerging countries.  Some of these countries are seeing regular double digit growth in their economy.  And it means the banks are lending, lending, lending!

Now, you must be wondering which country has the most promising growth.  Well, at the moment Brazil is the economic hot spot.

Here’s why…

Brazil has the 7th largest GDP in the world at over $2.09 trillion. And it’s growing fast.  Their current GDP growth rate is over 7.5%! That’s impressive growth by any measure.  And the huge improvement can be attributed to strong exports…

For instance, Brazil’s 2010 exports exceeded $210 billion.  Their primary exports include steel, paper, electric machinery, soybeans, footwear, coffee, and automotive parts.

But what’s really amazing is they grew exports from $153 billion in 2009.  That’s over 37% export growth in just one year!  And there’s a reason why…

One of the world’s top consumers is now their number one buyer.

Brazil’s largest trade partner for 2010 was China with total trade in goods of $56.4 billion.  China was followed by the US with $46.7 billion, and Argentina with $31.6 billion.

It’s pretty clear, with their huge export demand, Brazil has serious profit potential.  And the best way I see capturing it is through a Brazilian bank.

Before I tell you which one, you should know about another great benefit to investing in Brazilian banks.

Emerging market assets offer a level of protection from many volatile elements in US markets.

When buying a US based bank, you’ll usually see its stock move with US stock market sentiment.  To protect yourself from this volatility, it’s smart to diversify your portfolio.  And owning a bank outside the US is a great way to strengthen your mix.

Protection from the US equity market is a huge benefit of investing in a foreign bank.  But even more critical is the buffer from a Euro collapse.  Buying a EuroZone bank right now exposes us to the potential massive losses from a sovereign debt default.

So investing in the explosive Latin American economy of Brazil makes perfect sense.

There are a few top players in the banking industry in Brazil.  And they’re all benefiting from strong growth in the region.

Here’s the deal…

Brazilian banks are lending at an astounding pace, even in the face of higher borrowing costs.  And S&P is reporting they expect to see even more growth in the commercial lending space during 2011.  So we want the bank that’s in position to capture as much business lending as possible.

Right now, all signs are pointing to Banco Itau (ITUB) as a top commercial growth play in Brazil.  You can find their ADRs trading on the NYSE.

Right now, ITUB is trading around $22 a share.  And after the recent consolidation, we should see a move higher from here.

Getting the right price is important, but knowing how well the company performs is even more critical…

Itau’s recurring net income for the first quarter of 2011 increased 7.0% compared to the fourth quarter of 2010.  And it jumped 14.8% compared to the same period of the prior year.

In addition, the company produced sales growth of 31.19% from last year and EPS growth of 15% in the same time period.

And while ITUB is performing well now, their future estimates are even more compelling…

Like most banks in the region, ITUB is expected to see loan growth ease from their meteoric 20.5% set in 2010.  However, analysts are still expecting a hefty 13% increase in loan growth this year.

The analysts are seeing big numbers for 2011.  They’re expecting revenue growth of 17% and EPS growth of over 27%!

Even though they’ll see less aggressive growth in 2011, Banco Itau is perfectly positioned to capitalize on the red hot Brazilian economy.

If you want exposure to a quality bank outside of the US and EuroZone markets, consider adding Banco Itau to your portfolio…

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Category: Foreign Markets

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