This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Brazil Bank Stocks Set to Rally

Stocks in this article: ITUBBBDBSBR

NEW YORK ( TheStreet) -- Shares of Brazilian banks Itau Unibanco Banco Holding (ITUB), Banco Bradesco (BBD) and Banco Santander (Brasil) (BSBR) look set to rise.

The stocks currently have relative low valuations and should benefit from Brazil's robust economic growth.

As noted in our investment guide to Brazil, the country's banks will benefit from improving credit quality and delinquency rates in both individual and commercial loans. The nation's unemployment rate has been declining, and corporate profits have been increasing.

On his June 10 'Mad Money' TV program, Jim Cramer said that the best bets on the long-term growth of Brazil's middle class are banks, along with utilities and the food-and-beverage sector. The country's middle class now stands at 49% of the overall population, compared with around 39% five years ago.

Loan growth will likely expand at a compound annual growth rate (CAGR) of 25% over the next three years, according to Goldman Sachs (GS). Banco Bradesco guided the company's loan portfolio to grow between 21% and 25% this year, driven by property loans and certain specific lines, especially payroll deductible loans.

Last week, Goldman upgraded Itau Unibanco, the largest Brazilian bank by market value, to buy from neutral on valuation. During May 2010, Bank of America (BAC) sold its 5.4% stake in Itau Unibanco, a move that triggered broader selloffs in Itau stock, creating a buying opportunity.

Meanwhile, UBS issued a buy recommendation on Banco Santander (Brasil) on its attractive valuation. The stock is trading at a 10% discount to the average of private bank peers and has a higher dividend yield of 5.9%, according to UBS.

UBS is neutral on Banco Bradesco because its analysts view the stock's valuation as less attractive. However, Bank of America/Merrill Lynch upgraded Banco Bradesco to buy from neutral last week.

Itau Unibanco has surpassed Citigroup (C) and Goldman Sachs in Brazil bond underwriting. Brazil banks held up better during the financial crisis than their foreign counterparts. Currently, four Brazil banks are among the top 10 underwriters, the most since 1999, according to Bloomberg.

During July, shares of Itau Unibanco surged 18.4%, while Banco Bradesco gained 18.0% and Banco Santander (Brasil) rose 20.6%.

The three stocks currently have price-to-earnings ratios of 13.0, 12.3, and 12.4, respectively. Those ratios are less than the 13.7 P/E ratio of 13.7 for Brazil's Bovespa index.

They're also less than the P/E ratios of 26.8 for India's HDFC Bank (HDB), 18.4 for ICICI Bank (IBN), 14.7 for Chile's Banco Santander (SAN) and 13.7 for Japan's Mitsubishi UFJ Financial Group (MTU).

Karvy Global Services (www.karvyglobal.com), a subsidiary of the Karvy group (www.karvy.com), provides specialized research in asset classes including stocks, mutual funds and insurance to leading Wall Street firms.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,805.41 +127.51 0.76%
S&P 500 1,964.58 +13.76 0.71%
NASDAQ 4,483.7150 +30.9230 0.69%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs