It's Latin America's Turn in the Spotlight

 | Mar 21, 2013 | 1:30 PM EDT  | Comments
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Stock quotes in this article:

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cig

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cib

In recent weeks, Latin America has been in the news to a degree rarely seen. In late February, Raul Castro, president of Cuba, announced that the five-year term he had just begun will be his last, meaning the 50-year-plus reign of the Castro brothers will end in 2018.

This announcement was soon followed by the death of Hugo Chavez, president of Venezuela, on March 5. Perhaps the most surprising Latin American-related news was the elevation of the Argentine Jorge Mario Bergoglio to the head of the Roman Catholic Church, where he took the name Pope Francis I. He's the first pope from the Americas and the Southern Hemisphere.

A lot is happening in Latin America, and not just of a political or religious nature. The southern portion of the Western Hemisphere is thriving economically, making it a good place to find investment opportunities.

One such opportunity comes from the land of the Pope, Telecom Argentina (TEO). A provider of landline, Internet, mobile telephony and other telecommunication services, Telecom Argentina gets high grades from my Peter Lynch-based strategy. This is one of several strategies I devised by reading how notable investors, such as Lynch, decide which stocks to buy, and automating their strategies so I can screen all stocks and analyze them in the same ways. The Lynch strategy's most significant variable is the P/E/G ratio, the price-to-earnings ratio relative to growth, which is a measure of how much the investor is paying for growth. A P/E/G of up to 1.0 is acceptable, and less than 0.5 is considered very impressive. Telecom Argentina is in impressive territory, with a P/E/G of just 0.21.

Another firm with a very impressive P/E/G is Companhia Energetica de Minas Gerais (CIG), or Cemig. Based in Brazil, Cemig is a utility engaged in electric generation and distribution and natural gas distribution, among other businesses. Its yield-adjusted P/E/G is just a shade higher than Telecom Argentina's, at 0.23.

The Lynch strategy takes a very positive view on Latin America nowadays. It is also giving good grades to a Colombian bank, Grupo Bancolombia (CIB). The largest financial conglomerate in Colombia, Grupo Bancolombia has close to 1,000 branches and 3,700 ATMs. The company claims that it has more than 130 years of experience. This bank's P/E/G is not as strong as those of Telecom Argentina or Cemig, but it is a perfectly acceptable 0.73 when adjusted for yield. For a financial intermediary, the Lynch strategy also requires an equity-to-assets ratio of at least 5%; Grupo Bancolombia's ratio is an impressive 12%.

I don't know if having a Latin American now sitting in the seat of St. Peter bodes well for our southern neighbors, but it cannot hurt. Besides, the region was performing relatively well even before the world heard of the former Jorge Mario Bergoglio.

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