Three Stocks to Add Some Latin Flavor to Your Portfolio
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I’m not sure if it is just because my wife and I have been on a Latin American cuisine craze or if it’s because of the tremendous growth opportunities I see ahead, but I am on a mission to add a bit more Latin American flavor to my portfolio. For years Latin American stocks have been considered more of a trade than a long term investment opportunity. I think that the tides have changed and that there is one massive long term growth opportunity that smart investors can take advantage of. I want to share with you three companies with proven business models that I currently have on my watch list which can take advantage of the massive shift toward a growing middle class south of our border.
When I look for a company in an emerging market like the one found in South America, in order to limit the investment risks I like to go with a proven business model. The membership warehouse model made popular at Costco (NASDAQ: COST) is a proven concept both in the US and across the globe. So where better to start than a company that was originally spun out of Costco in order to grow in Latin America? PriceSmart (NASDAQ: PSMT) was started in the early 90’s by Sol Price who founded Price Club and merged it with Costco only to take the concept south soon thereafter through PriceSmart. What I am looking for at PriceSmart is further penetration into South America, especially a move into Brazil. They currently have just 29 stores compared to Costco’s 600 leaving them with a virtually untapped market that lies before them.
When I think about Latin American food I certainly don’t think about a McDonalds (NYSE: MCD) hamburger but that’s exactly what you’ll find at Arcos Dorados (NYSE: ARCO). The company’s name means Golden Arches and they own exclusive rights to operate and franchise McDonald’s restaurants in most of Latin America. Currently, they have around 1,800 restaurants making them about one fifth the size of McDonalds. Arcos has the opportunity to produce a supersized return for long term investors. Right now shares are trading just above their IPO price from a year ago. While shares are nowhere near super value territory at about 35 times earnings, they are down about 13% from an October secondary offering and might just offer investors a tasty entry price.
The final Latin American company on my watch list is MercadoLibre (NASDAQ: MELI) which is the eBay of Latin America. Like Arcos, their name says it all. In English it means Free Market and they operate the biggest one south of the border. Like eBay and their subsidiary PayPal, Mercado also operates a payment platform, MercadoPago which produces a lot of profitable growth. Of the three, they are the most expensive trading at over fifty times earnings; however, they project to grow earnings in excess of 30% in each of the next two years. I will be watching the continued growth in MercadoPago to see if it has the same potential as PayPal.
In future articles I plan to take deeper looks at all three of these companies to see which one can add a bit more spice to my portfolio. I do have a very small position in PriceSmart that I am considering either adding to or putting in a basket together with Arcos or Meli. All three are very long term plays on the growing middle class of Latin America. Do you have a favorite stock from south of the border that you think has more of a growth flavor than the three I am looking at?
Motley Fool newsletter services recommend Arcos Dorados, Costco Wholesale, eBay, McDonald's, MercadoLibre, and PriceSmart. The Motley Fool owns shares of Arcos Dorados, and Costco Wholesale. latimerburned owns shares of PriceSmart. 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.