The Brazilian economy managed to shrug off pandemic-fueled economic disruption to register growth so far this year. Brazil's government cut its industrial tax (IPI) by 25% for most products to curb rising inflation and help recover from the pandemic-led damages. Bullish investor sentiment toward the Brazilian economy is evidenced by the iShares MSCI Brazil Capped ETF's (EWZ) 30% gains year-to-date.
The Fed's monetary policy tightening, 40-year high inflation, and surging oil prices have added stagflation risk to the U.S. and increased market volatility. Furthermore, these factors are pushing the U.S. economy toward recession. To alleviate the potential risk and instability, we think investors could add fundamentally solid Brazilian stocks to their portfolios. Brazil's thriving industries include agriculture, real estate, oil and gas, renewable energy, mining, and fossil fuels. These represent attractive investment sectors in Brazil.
Given these factors, we think it advisable to invest in quality Brazilian stocks Vale S.A. (VALE), Petróleo Brasileiro S.A. - Petrobras (PBR), Ambev S.A. (ABEV), and Companhia Siderúrgica Nacional (SID), which are expected to achieve robust growth in the near term.
Vale S.A. (VALE)
VALE produces and sells iron ore and iron ore pellets for use in steelmaking in Brazil and internationally. It is headquartered in Rio de Janeiro. The company operates through two segments: Ferrous Minerals; and Base Metals. The Ferrous Minerals segment produces iron ore and pellets, manganese, ferroalloys, and other ferrous products. The Base Metals segment produces and extracts nickel and its by-products.
Last June, VALE invested $150 million to extend current mining activities in Thompson, Manitoba by 10 years. This project includes expansion in critical infrastructure, such as new ventilation raises, additional power distribution, and increased backfill capacity. This project is expected to improve current production by 30%.
In its fiscal 2021 fourth quarter, ended Dec. 31, 2021, VALE's adjusted EBIT from continuing operations increased 5.7% year-over-year to $3.90 billion. The company's adjusted EBITDA from continuing operations grew 4.3% year-over-year to $4.73 billion. Its net income attributable to Vale's stockholders increased 634.4% from the prior-year period to $5.43 billion.
The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of VALE have increased 42.2% in price year-to-date and 45.8% over the past three months. It closed yesterday's trading session at $19.94.
VALE's POWR Ratings reflect this promising outlook. The stock has an overall A rating, which translates to Strong Buy in our proprietary system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
VALE has an A grade for Quality and a B for Sentiment and Value. Within the Industrial - Metals industry, it is ranked #5 of 37 stocks.
To see additional POWR Ratings (Momentum, Stability, and Growth) for VALE, click here.
Click here to check out our Industrial Sector Report for 2022
Petróleo Brasileiro S.A. - Petrobras (PBR)
PBR produces, markets, and sells oil and gas in Brazil and internationally. It is headquartered in Rio de Janeiro, Brazil. PBR operates through the Exploration and Production; Refining, Transportation, and Marketing; Gas and Power; and Corporate and Other Businesses segments. The company drills for, refines, processes, trades, and transports crude oil from onshore and offshore oil fields or other rocks. In addition, it explores, produces, and sells oil products, natural gas, and other liquid hydrocarbons.
On June 12, 2021, PBR announced the settlement of cash tender offers by its wholly owned subsidiary, Petrobras Global Finance B.V., concerning all PGF's outstanding notes.
PBR's sales revenue increased 72.7% year-over-year to $24.03 billion in its fiscal 2021 fourth quarter, ended Dec. 31, 2021. Its gross profit improved 40.5% year-over-year to $10.58 billion. PBR's net cash provided by operating activities increased 30% year-over-year to $9.20 billion. And the company's adjusted EBITDA grew 28% year-over-year to $11.28 billion.
Analysts expect PBR's revenue for its fiscal 2022 first quarter, ending March 31, 2022, to come in at $28.08 billion, representing a 78.2% rise year-over-year. The Street expects the company's EPS for the current quarter to come in at $0.84, representing a 2,000% increase year-over-year.
Over the past year, shares of PBR gained 64.9% in price and improved 25.7% year-to-date. PBR closed yesterday's trading session at $13.80.
PBR's POWR Ratings reflect this strong outlook. It has an overall rating of A, which translates to Strong Buy in our POWR Ratings system.
PBR has an A grade for Momentum and Quality. It has a B grade for Growth. It is ranked #7 of 43 stocks in the A-rated Foreign Oil & Gas industry.
Click here to see PBR ratings for Value, Sentiment, and Stability.
Ambev S.A. (ABEV)
ABEV produces, distributes, and sells beer, draft beer, carbonated soft drinks, other non-alcoholic beverages, malt, and food products in the Americas. ABEV is headquartered in Sao Paulo, Brazil. The company operates through three segments: Brazil; Central America and the Caribbean; Latin America South; and Canada. ABEV offers beer, bottled water, isotonic beverages, coconut water, ready-to-drink teas, and wellness shots.
In its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, ABEV's net revenue increased 18.6% year-over-year to R$22.01 billion ($4.41 billion). ABEV's gross profit increased 11.2% year-over-year to R$11.51 billion ($2.31 billion).
The $3.50 billion consensus revenue estimate for its fiscal year 2022 first quarter, ending March 31, 2022, represents 15.1% year-over-year growth from the same period in 2021. The $0.04 consensus earnings estimate for the current quarter represents a 33.3% year-over-year rise from the prior-year period.
ABEV increased 7.5% over the past three months and closed yesterday's trading session at $2.86.
ABEV's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a grade of A for Quality and B for Stability and Sentiment. Within the B-rated Beverages industry, it is ranked #11 of 37 stocks.
To see additional component grades of POWR Ratings (Value, Growth, and Momentum) for ABEV, click here.
Companhia Siderúrgica Nacional (SID)
SID is an integrated steel producer that operates in Brazil and Latin America. It is headquartered in Sao Paulo, Brazil. The company operates in five segments: Steel; Mining; Logistics; Energy; and Cement. SID offers flat steel products, hot-rolled products, cold-rolled products, tin mill products, steel sleepers, and operates railway and port facilities. In addition, it produces and sells cement to construction material stores, concrete producers, mortar industries, and home centers.
Last month, SID announced a cash tender offer for up to $300 million of its outstanding 7.6% senior unsecured guaranteed notes due 2026 that are held by CSN Resources S.A.
In its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, SID's net sales revenue increased 5.8% year-over-year to R$10.36 billion ($2.08 billion). The company's cash and cash equivalents rose 9.1%year-over-year to R$16.65 billion ($3.34 billion). SID's current assets improved 4.1% from the year-ago value to R$34.97 billion ($7.01 billion) for the fourth quarter.
The $2.33 billion consensus revenue estimate for its fiscal 2022 first quarter ending March 31, 2022, represents 4.4% year-over-year growth from the same period in 2021.
The stock has improved 18.7% in price year-to-date and 29.2% over the past three months. SID closed yesterday's trading session at $5.27.
SID's POWR Ratings reflect this strong outlook. The stock has an overall B rating, which translates to Buy in our POWR Ratings system.
SID has a grade of A for Momentum and Quality and a B for Value. It is ranked #22 of 33 stocks in the A-rated Steel industry.
Click here to see SID's POWR Ratings for Growth, Stability, and Sentiment.
Note that SID is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.
VALE shares were trading at $19.58 per share on Tuesday afternoon, down $0.36 (-1.81%). Year-to-date, VALE has gained 44.93%, versus a -5.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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