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In the midst of a widening stock market scandal in Brazil, involving the president of Brazil's central bank and the head of its stock exchange, foreign investors interested in partaking of the sweet returns in Brazilian financial services should focus on banks that keep their reserves up, their costs down and their delinquencies under tight rein. Such is the case for Brazil's third-largest bank, Unibanco (UBB - commentary - Cramer's Take), with a market cap of $30 billion.
In the prevailing uncertainty, a bank such as Unibanco, which reports strong earnings growth, a conservative balance sheet and strong returns, is to be preferred to rivals such as Banco Bradesco (BBD - commentary - Cramer's Take), Brazil's largest bank, or Banco Itau (ITU - commentary - Cramer's Take), Brazil's second-largest. Unibanco, which reported a two-year stock market return of 51% can be favorably compared to Bradesco's return of 46% and Itau's return of 47%. Unibanco slightly underperformed the iShares MSCI Brazil Index (EWZ - commentary - Cramer's Take), which reported a 56% return over the same period. As well, its P/E ratio, at 21.25, is above sector norms of 14.25, but its price-to-sales ratio, at 2.14, is below sector norms of 3.29. The following chart offers a graphic representation of the relative stock market performance of the three banks, along with that of the iShares MSCI Brazil Index.
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At the time of publication, Vijayraghavan was long Unibanco. Vasu Vijayraghavan was an academic finance professor at the University of Paris who has now turned to a new career as a financial consultant. As an academic, she wrote on corporate governance issues, especially in the European context, and she believes in a long-run and balance sheet approach to stock picking. Currently, Vasu is working as a consultant for lawyers, doing business valuation. She is a Level II CFA candidate and enjoys writing long/short and earnings calls pieces for TheStreet.Com. Vasu holds a Ph.D. from the University of Michigan and a B.A. from Harvard University. 
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