The Best Way to Play the Robust Growth in South America
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The economy in South America is hot, and this trend looks like it could continue for quite some time. So what is the best way for a savvy investor to play this, you ask? Allow me to explain...
The growth in South America is causing the middle class to expand significantly. These middle class families are beginning to earn higher incomes and in response they are indulging in some of the services that are becoming more accessible to them. I am focusing specifically on telecommunication services. While cable, Internet, and mobile services are widespread in the United States, many families that are just entering the middle class in South America are just gaining access to these services. The two companies I have picked out have impressive growth as well as high dividend yields. These two picks are Telecomunicacoes de Sao Paulo SA (ADR) AKA Telefonica Brasil (NYSE: VIV) and Telecom Argentina S.A. (NYSE: TEO)
Although the economy in many South American countries continues to grow at rates of roughly 7-10% a year, there are definitely some complexities and counter arguments to this trend. Most include the high interest rates for borrowers, crime, and widespread corruption. This is why I insist that all of my investments in this region are insured by large dividend yields. Telecomunicacoes de Sao Paulo and Telecom Argentina are projected to yield roughly 11% and 8%, respectively in 2012.
Telefonica Brasil recently reported a 1.3% drop in net income for the year 2011, likely due to a drop in fixed line business while mobile business continues to grow. They currently have 72 million customers and are the largest mobile phone company in Brazil with a 29.5% market share. The company boasts an impressive return on investment of 17% and insiders own 4.1% of the float, which shows solid insider confidence in the growth potential of the company.
Similarly impressive, Telecom Argentina has had EPS growth averaging 10% over the past five years. Their return on investment is a sky high, 33%, and the company is growing at an incredible pace with an average of 21% increase in year over year sales, over the past five years.
Conclusion
If you think you’re too late to take part in the growth going on in South America, think again. The telecom industry is currently trading at a great value, while offering substantial dividend payouts and huge growth potential. What more can you ask for?
The Motley Fool has no positions in the stocks mentioned above. MastodonCap owns stock in both companies mentioned and is investigating further investment oppurtinities in South America. 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.
