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Buy These 6 Latin America Stocks for Strong Gains in 2018

Swarup Gupta
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Even as U.S. equity markets endured a correction this month, a curious incident was underway. Stocks from Latin America began to turn in an impressive performance exactly around this time. This is a notable improvement from last year’s performance, when the iShares S&P Latin America 40 Index gained only 23.6%, coming in behind the iShares MSCI Emerging Markets Index, which returned 30.4% over the same period.

In contrast, Latin America stocks are up 14.4% this year versus 6.5% for their global counterparts. A large portion of the selloff’s global shock was absorbed by Chinese equities and it’s been relatively smooth sailing for their Latin American counterparts.

Analysts increasingly believe that stocks from the region have it in them to continue to outperform their Chinese counterparts. Prospects of economic growth also remain largely strong across Latin America, which makes stocks from the region intelligent additions to your portfolios.

Brazil’s Economy on the Rebound

According to data released earlier this month, economic activity for Brazil increased at a faster than expected pace in December. The country’s central bank’s economic activity index increased by 1.4% from the pace recorded in November, exceeding economists’ estimates which hovered around 1.1%. This was also the first annual increase recorded in four years.

This improvement comes after the economy suffered a two-year long recession between 2015 and 2016. Ultimately, the economy staged a recovery last year, expanding at an annual pace of 1%.

Analysts believe that his has been possible due to a series of capable economic ministers who have worked unceasingly, ignoring the political turmoil in the country. A crucial presidential election is scheduled for October, but with left leaning candidate Lula Inácio da Silva more or less out of the reckoning due to legal troubles, Brazil may actually be in for a period of relative political calm.

Argentina, Mexico Remain Strong Prospects

At first glance, Mexico’s prospects look clouded with its economy expanding at a slower than expected pace in the fourth quarter. Despite such a turn of events, the country still expanded at an annual pace of 2% in 2017, exceeding several other troubled economies across the region.

Additionally, populist candidate Andrés Manuel López Obrador is tipped to win upcoming presidential elections and Trump has threatened to withdraw from the North American Free Trade Agreement (NAFTA). But analysts feel markets have already accounted for Obrador’s victory and that it may be difficult to revoke NAFTA for practical reasons.

So, overall Mexico’s prospects continue to remain strong. Meanwhile, Guido Sandleris, a key advisor to Argentina’s Treasury Ministry revealed earlier this month that the country’s economy has expanded by nearly 2.8%.

This represents a clear recovery for Argentina after its economy contracted by 2.2% in 2016. Sandleris also projected that the economy would expand at a faster clip in 2018, by nearly 3.5%.

Our Choices

Latin America stocks have turned in a strong performance this year, especially since U.S. markets endured a correction. Overall, their economic prospects remain strong even as markets have largely priced in associated political risks.

Adding stocks from Latin America to your portfolios looks like a smart option at this point. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.

TIM Participações S.A. TSU offers mobile telecom services across Brazil.

TIM Participações has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 22.1% for the current year The Zacks Consensus Estimate for the current year has improved by 9.1% over the last 30 days.

Cosan Limited CZZ is the leading global ethanol and sugar company in terms of production with low-cost, large-scale and integrated operations in Brazil.

Cosan has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.3% over the last 30 days.

Industrias Bachoco, S.A.B. de C.V. IBA is a leader in poultry production in Mexico and the United States.

Industrias Bachoco has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 38.5% over the last 30 days.

IRSA Inversiones y Representaciones IRS invests in and develops industrial, commercial and residential real estate in Argentina.

IRSA Inversiones has a VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 20.8% over the last 30 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Vale S.A. VALE is one of the world's largest producers and exporters of iron ore and pellets. Vale is based in Rio de Janeiro, Brazil.

Vale has a Zacks Rank #2 (Buy) and a VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 7.5% over the last 30 days.

Telecom Argentina S.A. TEO is a provider of telecom, Internet and pay TV services in Argentina.

Telecom Argentina has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 14.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.8% over the last 30 days.

Zacks Top 10 Stocks for 2018

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VALE S.A. (VALE) : Free Stock Analysis Report
 
IRSA Inversiones Y Representaciones S.A. (IRS) : Free Stock Analysis Report
 
Telecom Argentina Stet - France Telecom S.A. (TEO) : Free Stock Analysis Report
 
TIM Participacoes S.A. (TSU) : Free Stock Analysis Report
 
Cosan Limited (CZZ) : Free Stock Analysis Report
 
Industrias Bachoco, S.A. de C.V. (IBA) : Free Stock Analysis Report
 
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