Three Stocks with Proven Business Models in Latin America
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The fact that Latin American countries present some very attractive economic fundamentals is widely understood: higher economic growth, rising middle class income and low levels of national and personal debt make this region a convenient destination for investors looking for opportunities to diversify their portfolio and invest in companies with outstanding growth prospects.
Lack of knowledge and familiarity with Latin American companies can be an important drawback for many US based investors. For this reason it may be a smart idea to focus your attention on those companies that have proven business models and products that are successful on a worldwide scale.
If the business is working fine in developed countries, there is no reason it shouldn´t make money in Latin America. This could be a clever way to invest in companies that combine familiar products or services with exposure to high growth countries.
The undisputed leader in the global fast food industry is clearly McDonald's (NYSE: MCD). This brand has a tremendous presence all over the world, and McDonald´s is even considered a symbol of capitalism and globalization. From New York to Moscow or Beijing, a McDonald´s store can be found in the most popular streets of every important city in the world.
McDonald´s sometimes adds some minor alterations to its menus so they can better fit the taste of local clients, but for the most part its products are pretty much the same all over the world, and they are very successful.
Arcos Dorados (NYSE: ARCO) is the main operator of McDonald´s franchises in the world, with more than 1,700 stores in the Latin American region. The company has presence in 19 countries like Brazil, Argentina, Mexico and Chile among others. Arcos Dorados (which means Golden Arches) has started trading in US markets less than a year ago, so it's a relatively new stock in the New York Exchange. This company is a great candidate for those who are looking for traditional and successful businesses in the Latin American region.
Mercado Libre (NASDAQ: MELI) is popularly known as the Ebay of Latin America, the company is the largest e-commerce platform in the region and has a business model that is very similar to the one applied by Ebay.
E-commerce is a high growth industry everywhere and it's even more promising in Latin America where markets are clearly under-penetrated in comparison to the US or Europe. E-commerce will keep growing at extraordinary rates for many years in countries like Brazil, Mexico, Chile and Argentina, and Mercado Libre is in a unique position to benefit from this opportunity.
Products like Budweiser, Gatorade and Pepsi drinks are quite a sure bet, and they are widely demanded in different countries. Companhia de Bebidas das Americas (NYSE: ABV), or Ambev, is the main bottler and distributor of these products in high growth Latin American countries like Brazil. The company also produces many local beer brands like Brahama and Antártica which are really popular among Latin American consumers.
Ambev is a very profitable company with operating margins in the 40% zone, which is above the profitability ratios observed in other companies in the industry. The company also rewards investors with a 3.7% dividend yield and has regularly increased payments in the last years. Commodity prices can affect profit margins, since they are an input for this company, but Ambev is strong enough to translate higher prices to consumers over time.
These three companies have successful products and proven business models. As a result, they are a low risk way to venture into the high growth Latin America region.
Motley Fool newsletter services recommend Arcos Dorados, McDonald's and MercadoLibre. The Motley Fool owns shares of Arcos Dorados and MercadoLibre. acardenal has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.