Padding Your Latin American Exposure

 | Feb 14, 2012 | 9:30 AM EST
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When it comes to major emerging-market economies, Latin America as a whole is certainly no longer the "banana republic," sorry-state region it once seemed to be. Take Brazil, for example -- the kingpin of this burgeoning economic geographic area. Its population now exceeds 200 million, and its economy ranks as the seventh-largest in the world.

Mexico, another Latin American giant, has more than 100 million people and its economy is about the 14th largest. More top-50 economies in Latin America include Argentina, Chile, Venezuela, Colombia and Peru.

In fact, since its inception in 2007, my Validea Latin America portfolio has risen 58.8% vs. a 4.7% loss for the benchmark index, MSCI EAFE (Morgan Stanley Capital International Europe, Australasia, Far East). Year to date, the portfolio has gained 17.6%, as compared with a 9.6% gain for the index.

So if you want an internationally diversified portfolio of stocks -- and almost everyone should -- you need Latin American names. Here are five companies from my Latin America portfolio that have all received a high mark from one of the guru strategies I use to analyze stocks. These are computerized strategies I based on the writings of well-known Wall Street investors.

Telecom Argentina (TEO): This is one of Argentina's two incumbent telecom companies, with about four million landline customers and 14 million wireless ones. My Kenneth Fisher-based strategy is a believer in this company. Per that strategy, in Telecom Argentina's favor is a price-to-sales ratio of 0.52 -- well within the stipulated maximum of 0.75. As far as debt is concerned, the company is also a winner, with debt worth about 2% of equity. The company also has a strong inflation-adjusted earnings per share growth rate of 20.54%, as well as positive cash flow per share.

Banco Macro (BMA): Among Argentina's banks, this one ranks about sixth, and it's favored by a strategy I base on Peter Lynch's investment ideas. This stock screen emphasizes the price-to-earnings ratio relative to growth, commonly referred to as the P/E/G ratio, with a maximum allowable level of 1.0. Anything less than 0.5 is considered very strong, and Macro is in this territory with a P/E/G of 0.19.

National Electricity Company of Chile (EOC): This company, usually referred to as Endesa Chile, is an electricity generating company with operations in Chile, Argentina, Colombia and Peru. It operates 50 generating plants in Latin America, making it one of the largest electricity generating companies in the region. This, too, is a Lynch favorite. The company's P/E/G is a strong 0.43.

Petrobras (PBR): According to this major oil producer, also known as Petroleo Brasileiro, it's the third-biggest energy company in the world. It is also among the most valuable, with current market capitalization of about $200 billion. A strategy I base on the thinking of James P. O'Shaughnessy likes this company because of its large market cap, strong cash flow per share, huge sales of $142 billion and large dividend yield of 4.30%.

Vale (VALE): This Brazil-based outfit is the largest iron producer in the world and the second-largest nickel producer, and it operates in 38 countries. Vale is also a favorite of the O'Shaughnessy strategy because of its large market cap of $137 billion, strong cash flow per share, large number of shares outstanding and high 12-month sales. This strategy looks at all the firms that pass the previous tests and chooses the top 50 based on dividend yield. As with Petrobras, Vale is among this select group, sporting a dividend yield of 6.87%.


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