Brazil’s Shame, Still Some Chances to Gain

Written by GSCR Staff   
Friday, 11 July 2014 08:29

We will not proclaim to be soccer (futbol) experts, but as our regular readers know we love to comment on sports in general. Germany’s 7-1 trouncing of the home team Brazil in the World Cup was unparalleled in the event’s history given the fact that these are two of the superpowers of the sport. Every foreign national we know says the closest thing we have to the hardcore fandom of soccer fans is big time program, or blue blood, college football here in the states. The closest comparison we could draw to this game along those lines is Florida’s trouncing of Ohio State in the national title in 2007, 41-14. How does this humiliation affect the Brazilian psyche? The nation has the Olympics in 2016 so there is not much time to sulk. The message is life goes on and Brazil is still a hot bed for potential growth.

Through ETFs, mutual funds, bonds, and stocks there are many chances to get into the mix in Brazil. Getting into individual stocks through ADR’s may be risky, so we found a ‘less risky’ stock. While utilities and growth stocks are a paradox, Brazil is a developing nation where this is a possibility. CPFL Energia, S.A. (NYSE –CPL - $18.16) appears to a potential candidate in this regard. The figure below shows both the historical growth of Brazil’s electricity demand and the forecast through 2022.

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A compound growth rate of 5% over the next 10 years or so makes investing in Brazil electricity an attractive opportunity. The restructuring of the market around 10 years ago opened up electricity generation and distribution to companies like CPL and has enabled the industry to grow and profit. Currently the Company has 15% market share and a growing portfolio in hydroelectric, thermoelectric, sugarcane biomass, solar energy, and wind power plants.

 

The stock appears to be on an accumulation run and a very bullish indication remains for the DMA going forward. CPL has run up about $2 over the past month with about 200,000 shares traded per day. We think the stock could climb to $20 this year and could be a solid single stock play in Brazil for the long term.

 

Brazil gets its mojo back.

Have a great weekend!

 

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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