Four Latin American Stocks to Own

Latin America is doing well these days. Countries that were relatively economically undeveloped a few years ago -- such as Brazil, Mexico, Argentina and Chile -- are now much more developed and sophisticated.

Stocks in the region are, not surprisingly, doing well, too. Examples: Mexico's IPC stock index is up 12% this year, and Brazil's Bovespa stock index is up 13.6%. By contrast, the S&P 500 is up 5.8%, less than half the increases of these Latin American indices.

The strength of the economies south of the U.S. suggests they offer desirable long-term investment opportunities. There are plenty of public companies in Latin America, but, of course, most are not worth taking a chance on. Here are four companies that U.S. investors should consider.

Petroleo Brasileiro (PBR - commentary - Cramer's Take): This is a vertically integrated energy company controlled by the Brazilian government. The O'Shaughnessy strategy thinks investing in this company is like striking oil because of its market cap ($113 billion), abundant cash flow per share ($15.64), sizable number of shares outstanding (over one billion) and large revenues ($72.3 billion). Further, among the companies that have passed each of these tests, Petrobras provides one of the best dividend yields (2.5%).

The Lynch strategy thinks Petrobras is slick because of its P/E (a modest 8.81), growth rate (a high 37.36%, based on the average of the three-, four- and five-year historical EPS growth rates) and its very impressive PEG ratio of 0.24. Wow, that is a low PEG.

CPFL Energia (CPL - commentary - Cramer's Take): CPFL generates and distributes electricity in Brazil. The strategy I base on David Dreman's writings views CPFL as a winner. It considers the company a contrarian, or out-of-favor, stock because both its P/E and price-to-dividend ratios are in the bottom 20% of the market.

At the same time, the strategy finds the company has a number of positive financial variables that indicate its stock price is being unjustly punished by the market. CPFL's current ratio, for example, is higher than its industry's average. Its return on equity is a very impressive 29.49%. Its yield is a high 8.18% (nearly three times the market's 2.33% yield), and its total debt-to-equity ratio is considerably below its industry's average. This is a company that is performing well but suffering with a low-priced stock. The Dreman strategy considers this a strong buying opportunity.

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At the time of publication, Reese was long Petroleo Brasileiro, CPFL Energia, Companhia Vale Do Rio Doce and Banco Bilbao Vizcaya Argentaria, although holdings can change at any time.

John P. Reese is founder and CEO of Validea.com, an investment research firm, and Validea Capital Management, an asset management firm serving affluent investors and companies. He is also co-author of the best-selling book, The Market Gurus: Stock Investing Strategies You Can Use From Wall Street's Best. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback. Click here to send him an email.

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