Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Will Landers, manager of the BlackRock Latin American Investment Trust.
Boasting an accumulated return of over 500%, versus close to zero for the S&P 500, Latin America has moved away from the old boom and bust cycle towards economic stability and growth. More than 55% of Latin Americans are under the age of 30, which, along with the growing numbers of the middle classes, have created significant opportunities for investing in the region's domestic economies.
My team at BlackRock spends the majority of its time on bottom-up research, both in the office and by visiting companies in the region. We look for quality management teams that understand the benefits and responsibilities that come with being a publicly traded company. We seek companies with competitive advantages that allow them to grow at a faster pace than competitors. We like attractive growth prospects coupled with the ability to translate such growth opportunities into positive returns for shareholders. We look for those companies that are trading at reasonable valuation levels with the potential to generate superior returns.
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Today, our favourite stock in Latin America is Itau Unibanco (NYSE: ITUB), a Brazilian bank. Financial products penetration is relatively low in Brazil, with overall loans representing less than 50% of GDP. Consumer lending represents a small portion of overall loans and mortgages are below 5% of GDP. Itau is highly focused on growing its consumer and small-to medium-sized-businesses lending book, while maintaining a leadership position in corporate lending, investment banking, asset management and insurance. Following the acquisition of Unibanco in 2008, it became Brazil's largest private-sector bank. Return on equity consistently tops 20%, yet it is trading at less than ten times projected 2012 earnings.
In the commodity world, Brazil's Vale (NYSE: VALE) is our favourite holding. Vale is the world's largest producer of iron ore, but also has a significant presence in nickel, copper, coal and fertilisers. Iron ore represents a majority of the company's profitability and it enjoys some of the lowest extraction costs among global producers.
Brazil's iron ore also has one of the highest ore contents, making it more efficient and less polluting. China is Vale's principal destination market and growing demand should support prices for at least another three years. In order to combat the threat from lower freight costs for Australian iron ore, the company has ordered 450,000 ton freighters to create a shuttle service between Brazil and Asia. Vale currently trades on less than seven times 2012 projected earnings.
Finally, we like America Movil (NYSE: AMX), Latin America's leading provider of wireless telecommunications. Originally a spin-off from Mexico's Telmex, the firm has acquired wireless operations in virtually every country in Latin America. The company was the first to launch a 3G network in most of the countries it operates, providing it with a competitive advantage as wireless technology gains market share. The recent acquisition of Telmex International enhances the company's ability to grow its data business. The firm generates significant free cash flow, which is consistently paid back to shareholders via stock buy-backs and dividends. Yet the stock currently trades on around ten times 2012 projected earnings.
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