What to buy -- Brazil? (GOL, ERJ, PBRA)
Well, thanks to the Provide Commerce buyout and to the fact that I haven't deployed any new money in a little while, I've got a cash pile that I want to invest somewhere. Where's the best place?
I've been thinking about a lot of different approaches to take with my next investment decision lately -- could be a big blue chipper to ease some of the volatility in my portfolio, and my favorites at the moment in that area are Microsoft and Citigroup. Not that exciting, but I think both are currently undervalued -- the main thing holding me back is that I don't much like investing in megacap companies as a general rule.
And I've also been thinking about leveraging my personal knowledge to look for opportunities where I might know more about the company than most. I work in higher education, and two companies that stand out there are Blackboard, especially after their acquisition of WebCT, their biggest competitor, and Reed Elsevier, the dominant scholarly publisher and owner of Lexis Nexis, among other properties. I think both are well-run companies, though I hate being an Elsevier customer, and both will grow, but I haven't looked in detail at their valuations yet.
But today I'm thinking mostly about Brazil, where a few stocks of interest lie.
I held Petrobras (PBRA) and saw a great return from it last year, and I still think it's a great, undervalued company and a great play on South American privatization, growth, and industrialization. Add in the fact that they pay a nice dividend and have significant expertise in far offshore deep water drilling, which most experts believe will become more and more critical as the "easier to find oil" onshore and near shore is tapped out, and Petrobras is my favorite oil company right now. I already made a lot of money from owning them during last year's bull run in oil, however, and I wonder whether I want to take a specific position in energy right now.
The other two Brazilian companies I like are Embraer (ERJ), which is, I believe, the third or fourth largest airplane manufacturer in the world, and Gol (GOL), which is quickly becoming the dominant South American discount airline.
Embraer I've written about before when I put it on my wish list a few months ago. I could have gotten a better price then, but it still looks like a great play on the move toward smaller and more efficient jetliners that I believe is coming. Lots of Embraer jets are already in use in the US, and I think they'll be well positioned to fill in if and when the large planes become economically unfeasible for some routes or in some market conditions (ie, with very high oil prices). The one thing I'm looking out for right now is a possible pullback, as their order book for 2006 is reportedly quite light compared to this year. If we return to the prices we saw earlier this year when ERJ was seemingly quite undiscovered, it will be very tempting to make a buy.
Oddly enough, Gol does not use Embraer Jets. They are growing incredibly rapidly after beginning life just a few years ago as the brainchild of a Brazilian bus company, and they are copying the early moves of Southwest Airlines very closely -- they fly all Boeing 737's so far to standardize training and maintenance and keep costs lower, they are doing a great job of cost containment, and they fly direct routes to where people want to go. It's smart to follow the lead of the most successful airline in the Western Hemisphere, and in doing so they have grown their traffic rates more than 50% in the last year.
But they have also moved beyond that SWA model quickly in one significant way -- they are aiming to become not just the airline of choice for Brazil, but for international and domestic flights throughout South America. They've started nearby, with Bolivian and Argentinian flights, and recent news that they're even moving into Mexico with a franchise deal has caught some attention as well (though there's plenty of low-fare competition likely in that country, for sure).
The key for me is that Gol is growing quickly and, with the limited amount of research I've done so far on South American air travel, they've got the chance to really become a dominant force given the way they've hit the ground running. So what's the downside? Well, it seems crazy to invest in any airline given the way the US fliers have performed, and they've already grown and seen their stock appreciate very quickly -- it's trading at a PE in the low 20s, which is not cheap for a Brazilian stock. Still, I like their growth and their remarkably low cost structure, and the fact that they're not very well followed here in the US -- it's definitely worth a closer look for my portfolio.
Will let you know what else I'm considering as my tired little brain steams along -- and of course, I'll let you know if I make a decision.
I've been thinking about a lot of different approaches to take with my next investment decision lately -- could be a big blue chipper to ease some of the volatility in my portfolio, and my favorites at the moment in that area are Microsoft and Citigroup. Not that exciting, but I think both are currently undervalued -- the main thing holding me back is that I don't much like investing in megacap companies as a general rule.
And I've also been thinking about leveraging my personal knowledge to look for opportunities where I might know more about the company than most. I work in higher education, and two companies that stand out there are Blackboard, especially after their acquisition of WebCT, their biggest competitor, and Reed Elsevier, the dominant scholarly publisher and owner of Lexis Nexis, among other properties. I think both are well-run companies, though I hate being an Elsevier customer, and both will grow, but I haven't looked in detail at their valuations yet.
But today I'm thinking mostly about Brazil, where a few stocks of interest lie.
I held Petrobras (PBRA) and saw a great return from it last year, and I still think it's a great, undervalued company and a great play on South American privatization, growth, and industrialization. Add in the fact that they pay a nice dividend and have significant expertise in far offshore deep water drilling, which most experts believe will become more and more critical as the "easier to find oil" onshore and near shore is tapped out, and Petrobras is my favorite oil company right now. I already made a lot of money from owning them during last year's bull run in oil, however, and I wonder whether I want to take a specific position in energy right now.
The other two Brazilian companies I like are Embraer (ERJ), which is, I believe, the third or fourth largest airplane manufacturer in the world, and Gol (GOL), which is quickly becoming the dominant South American discount airline.
Embraer I've written about before when I put it on my wish list a few months ago. I could have gotten a better price then, but it still looks like a great play on the move toward smaller and more efficient jetliners that I believe is coming. Lots of Embraer jets are already in use in the US, and I think they'll be well positioned to fill in if and when the large planes become economically unfeasible for some routes or in some market conditions (ie, with very high oil prices). The one thing I'm looking out for right now is a possible pullback, as their order book for 2006 is reportedly quite light compared to this year. If we return to the prices we saw earlier this year when ERJ was seemingly quite undiscovered, it will be very tempting to make a buy.
Oddly enough, Gol does not use Embraer Jets. They are growing incredibly rapidly after beginning life just a few years ago as the brainchild of a Brazilian bus company, and they are copying the early moves of Southwest Airlines very closely -- they fly all Boeing 737's so far to standardize training and maintenance and keep costs lower, they are doing a great job of cost containment, and they fly direct routes to where people want to go. It's smart to follow the lead of the most successful airline in the Western Hemisphere, and in doing so they have grown their traffic rates more than 50% in the last year.
But they have also moved beyond that SWA model quickly in one significant way -- they are aiming to become not just the airline of choice for Brazil, but for international and domestic flights throughout South America. They've started nearby, with Bolivian and Argentinian flights, and recent news that they're even moving into Mexico with a franchise deal has caught some attention as well (though there's plenty of low-fare competition likely in that country, for sure).
The key for me is that Gol is growing quickly and, with the limited amount of research I've done so far on South American air travel, they've got the chance to really become a dominant force given the way they've hit the ground running. So what's the downside? Well, it seems crazy to invest in any airline given the way the US fliers have performed, and they've already grown and seen their stock appreciate very quickly -- it's trading at a PE in the low 20s, which is not cheap for a Brazilian stock. Still, I like their growth and their remarkably low cost structure, and the fact that they're not very well followed here in the US -- it's definitely worth a closer look for my portfolio.
Will let you know what else I'm considering as my tired little brain steams along -- and of course, I'll let you know if I make a decision.
This article posted by One Guy @ 12/07/2005 11:33:00 AM 2 comments
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