Localiza (BVMF: RENT3) was founded in the early 70's in Belo Horizonte, same city where Brazils president Dilma Rousseff born was born. In less than 10 years, the company was leading the rental car market by number of agencies. At the end of the 90s Localiza received an investment from private equity fund DLJ, and after a strong growth period held its IPO in 2005.
Continue Reading Below
Currently, company operates not only with rental cars, but also with fleet management, used-car retailer and franchises. This integrated platform ensures more operational flexibility and also superior financial performance. That strategy -- executed to perfection by the management team -- secured a performance of almost 900% for the IPO investors.
Performance this year is in line with the market -- in 2014 Localizas stock appreciated 8% vs. 9% of the Ibovespa index. Despite a controversial macroeconomic scenario in Brazil and a significant increase in competition during recent years, I believe not only in the competitive advantages of Localiza, but also the management team skills to raise, generate and allocate money.
Localiza market value is BRL7.6 billion, and estimated net income for 2014 is BRL380 million. Therefore, company is trading at a P/E of about 20x. Although not a cheap company, a combination of excellent track record -- CAGR during last 5 years was 39% for net income and 22% for book value, and ROIC in the 16-18% range -- and good long-term perspective will ensure profit for investors.
One of the largest bus manufacturers in the world, Marcopolo (BVMF: POMO4) reached this position after consolidating leadership in the Brazilian market and expanding its operations across all continents -- including sales in Canada and USA through New Flyer (TSE : NFI), where Marcopolo has a 20% stake.
Investors are not having a good 2014 with Marcopolo as its shares are plummeting about 15% this year and 40% from its historical maximum price achieved in March, 2013. A sharp drop in sales volumes is the main reason for the stock fall . However, I see this moment as a buying opportunity, and it should not last long.
Marcopolo net revenues tumble 8% during the 3rd quarter of 2014 (against the 3rd quarter of 2013). Margins were also affected by 1 to 2% with the sales volume decrease. One of the main reasons for that situation is Brazilian economic growth, which should be less than 1% for 2014 -- 70% of Marcopolo sales comes from Brazil.
Bus market is a cyclical industry, and I believe that the prospects for the future are much better than the 2014 results. Improvement in the Brazilian market will come from (i) government increasing school bus purchases, (ii) end of political deadlock barring investments in interstate bus-lines, (iii) real depreciation favoring exports from Brazil, and (iv) municipal elections in 2016 should increase bus investments during 2015 .
International outlook is also positive for Australia, Canada, Colombia, India and Mexico.
Long-term thinking investors should seize the moment and buy Marcopolo. And once the company resume its superior net margin of 10% and ROE of almost 25% its stock will follow business performance.
Brazilian insurance market still offer a significant opportunity, despite the fact that in the last 10 years premiums have been growing steadily at a CAGR of 15%. Brazilian insurance market penetration is 4% of 2013 GDP, comparing to a range of 7 to 12% for developed markets.
When comparing to global insurance companies, Brazilian insurance firms have higher growth and ROAE. Porto Seguro (BVMF: PSSA3) is one the three Brazilian listed insurance companies, and the leader for non-life insurance (auto and homeowner).
A strategy based on four cornerstones is the basis for an outstanding financial performance -- (i) segmented value proposition through 3 different brands, for different needs and preferences, (ii) strong relationship with brokers and clients, (iii) innovative products and services, and (iv) sophisticated risk selection and pricing. Resulting in an average 17% ROAE for the last 5 years.
In addition to market organic growth, Porto Seguro also has great potential expanding its business outside of southeastern Brazil. Porto Seguro market share in the Southeast is 33%, vs. 23% ten years ago. In other Brazilian regions market share is 16%, vs. 6% a decade ago. Porto Seguro has been expanding fast its national presence, and there are still plenty of opportunities to deploy its model outside the southeast region.
Porto Seguro has grown book value over 17% for the past 5 years, and has been trading for 1.7 times current book value. That valuation is not very cheap, but is among the average for international insurance players. I still think that Porto Seguro deserves a premium due to the Brazilian market opportunity, top-notch management team, and track-record of consistent outperformance.
A global trend in the search for energy efficiency and use of renewable energy started during the last decades, and a Brazilian company may be the best way to invest in the trend. WEG (BVMF: WEGE3) is one of the largest global manufacturers of electric motors and many different products used throughout the energy generation, transmission and distribution industry. The company also produce coatings.
Surely this is not the sexiest business in the world, but its results are. Revenues CAGR for the 96-13 period was 18%, putting the company as one of the fastests growing companies in its segment and in Brazil. WEGs EBITDA margin averaged 17% during the last 5 years, and its one of the highest within its competitors.
A megatrend is transforming WEGs market, and several opportunities are emerging. Energy efficiency, renewable energy, smart grid and electric vehicles are some of the opportunities arising that WEG seeks to meet through high investments in R&D -- WEG was one of the eight Brazilian companies included in the Global Innovation 1000 ranking.
It was only possible to achieve such an impressive historical financial results through a set of different competitive advantages WEG created since its foundation -- the main ones are a vertical integration of its production facilities and an international footprint that accounts for 50% of sales.
A company that came out of BRL30 million annual income in 1995 to BRL850 million in 2013, and that operates in such promising industry could not be cheap. And thats the case for WEG. Company trades at a P/E of 23x, well above its competitors ABB (NYSE: ABB) 17x, Siemens (FRA: SIE) 13x, and Schneider (EPA: SU) 16x.
Yet, I believe we are in a good time to invest in WEG. The company has an aggressive five years growth plan, based on organic growth of its operations, stronger international expansion, new business lines and acquisitions. Sometimes, expensive stocks only get more expensive.
Michel Glezer owns shares of Marcopolo and Porto Seguro.
The article 4 Brazilian Stocks I Would Buy if I had $10,000 originally appeared on Fool.com.
Copyright 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
Continue Reading Below