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Gafisa S.A. Message Board

  • gaborrcz gaborrcz May 23, 2012 7:45 AM Flag

    Thoughts

    I started to buy GFA just a few days ago slightly above $3 and below $3...now my average is $2.98. Fortunately I made a killing with ARNA on May 11th and reinvested the profit into GFA.
    I did some DD but nothing extensive. I read all the thoughtful comments and civilized debates from acobrasil and invest2 etc....

    I persuaded myself by looking at the macros of Brazil, the 6th biggest economy in the world, relatively low debt/GDP ratio compared to the West, still healthy GDP growth rate at 4-5% now cut to 3% for 2012 (still far better than Europe or the rest of the world.)

    Then I looked at GFA. Well established company, good brand, in business for more than 50 years...top projects, new management , turnaround situation etc.
    Valuation looked excellent, selling at half book value, close to 52 week low...with the lower price it looks even better now I should say...
    Huge debt, hence pretty big leverage but what the heck I thought...
    Now I am sitting with a -20% loss in just a few days and thinking...It may sound silly to get out at this price but the real keeps getting weaker and weaker every day...

    Long term Brazil should be fine or at least better positioned than many Western countries but I am afraid we might be facing long recessions in Europe, US and as a result considerable slowdown in China. Brazil depends on commodities and tries to fuel growth on domestic consumption. Is this going to succeed ? As per economists Brazil deliberately cooled its economy and now that sees no inflationary risks in this deflationary environment tries to fuel growth by cutting interest rate. (consumer driven demand etc.)
    Due to lowering interest rate the countereffect is a loss of value in the real which has a negative impact on ADRs expressed in dollar terms. But it is making Brazil exports even more competitive...
    One question of the many when the market is going to assign bigger value to the inventory on hand at GFA ?
    How is GFA going to do in the near future ?

    I would think that we are at or very close to bottoming out but anything can happen...I would add more at this level but I allocated all I wanted for this play...

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    • Thanks for weighing in Gab. I think most of the macro concerns you site are very valid, especially regarding China, Brazilian commodity dependency, and the BRL. Like I have stated repeatedly, I also think the Brazilian housing market is in a bubble.

      If we get another 2008 meltdown scenario, GFA is going a lot lower. No doubt. Its definitely a possibility. The fact that the Banco Central's intervention with 2.2 billion yesterday failed to stem the Real's slide is very troublesome in particular.

      On the plus side, I think the AUD and BRL are probably oversold and the USD overbought in the short term. I also think that GFA management is taking the best possible steps to mitigate a tough business climate and counter several years of incompetent mismanagement. Though housing demand is slackening impacting sales, years of severe worker cost pressures will also diminish helping the bottom line.

      Technically, this is a critical make or break point for the stock. Daily charts show a SEVERELY oversold RSI and Weeklies show it struck a key trendline yesterday.

      I think you have a very good chance of breaking even within the next week or two at $3.

      On a kind of separate note, this is one of the best investing articles I have read in a LONG time.

      http://brazilianbubble.com/long-interview-with-jim-chanos-a-contrarian-is-told-hes-wrong-all-the-time-as-hes-going-against-the-grain-and-it-takes-a-certain-temperament-to-disregard-this/

      • 1 Reply to aco_brasil0192
      • I owned this when it was around $12-14 and sold it all for a slight loss a while back. I knew that Brazilian housing would come close to a bubble and figured that it would occur a year or 2 before the World Cup/Olympics timeframe. When GFA price went down on good news, I knew something was up (or down).

        The reason I sold was just the difficulty (and frustration) in obtaining real current information about the Brazil housing market. Unless you live there or have family there, or speak/read Portuguese, how can you really know what is going on not only in Brazil but conditions of this company?

        That said, I did invest mucho dinero (oops, I mean muito dinheiro), into EWZ, BRF, PBR, VALE) and made some good money. I think that I will stay away from GFA and just invest in the above in the future. There is just so much more info available. Brazil stock prices, however, still have a long way to drop so I continue to stay away.

 
GFA
2.98+0.08(+2.76%)Aug 29 4:03 PMEDT

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