Watch Brazil for More Than Just the Olympics

 | Aug 15, 2016 | 8:00 AM EDT
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Stock quotes in this article:

tsu

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ti

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itub

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elp

With all eyes on Brazil because it is hosting the Olympics, it seems a good time to look at some Brazilian companies. Yes, Brazil's economy is struggling and the country has a bunch of political turmoil, but with about 200 million people and the eighth-largest economy in the world, Brazil is an economic powerhouse that should be on every investor's radar screen.

One significant company worth considering is TIM Participacoes (TSU) , better known as TIM Brasil. Controlled by Telecom Italia (TI) , this telecom is the country's second-largest wireless telephone operator. It meets the exacting standards of my James P. O'Shaughnessy-based strategy, one of several automated strategies I created to mirror how great Wall Street gurus decide to invest.

In the company's favor is its $6 billion-plus market cap, earnings per share that have increased in each of the past five years and a low price-to-sales ratio, an indicator the stock is well priced. Among the companies that meet these criteria, the strategy picks the best 50 based on relative strength, which measures how well a stock has performed in the past year compared with the overall market. TIM makes it into this top-50 group of companies.

Itau Unibanco Holding (ITUB) is Brazil's largest non-state-owned bank. The strategy I based on the thinking of Peter Lynch is giving this financial institution a gold medal. This strategy focuses on the P/E/G ratio, which is price-to-earnings relative to growth, and is a way to gauge how much the investor is paying for growth given today's stock price. A P/E/G of 1.0 or less is acceptable, and Itau Unibanco's yield-adjusted P/E/G is well below this at 0.69. Also in its favor is a healthy return on assets and equity-to-assets ratio.

Energy Company of Parana (ELP) , also known as Copel, is an electric utility with a telecommunications business, and is the largest company in its home state of Parana. Another Lynch favorite, it is worth noting the company has a strong yield adjusted P/E/G of 0.83.

Brazil's struggles probably turn off some investors. View the country's current economic weakness as a buying opportunity. The guru strategies indicate these are companies worth buying for the long term. Think like a marathoner, not a sprinter.

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