ArcelorMittal (ADR) (NYSE:MT) supplies 20% of automakers’ steel worldwide. In emerging markets, which represent 80% of global demand, the company has been aggressive. It now boasts a 30% share of the Brazilian steel market and is fighting for an increased presence in India and China.
Although it owns minority interests in two Chinese steel producers, it will be an uphill struggle for ArcelorMittal (ADR) (NYSE:MT) to establish any kind of dominant role in China. China is the world’s largest consumer of steel, yet the Chinese government has kept tight reins on the market and has blocked any attempts at majority holdings by foreign companies.
Banco Santander (Brasil) SA (ADR) (NYSE:BSBR)
Yield: 5.4%
It may seem crazy to recommend a Brazilian bank, even when it’s trading for historically cheap prices.
After all, the country has a scary history of sudden inflation and government intervention into private business.
But the fact is the company generates enormous amounts of consistent free cash flow ($8 billion last year) and has paid a dividend over 3% for the past three years.
Here’s why Banco Santander (Brasil) SA (ADR) (NYSE:BSBR) could be poised for a turnaround:
In Brazil, six banks control more than 90% of the banking system’s assets.
And of these six, Banco Santander (Brasil) SA (ADR) (NYSE:BSBR) is the smallest. With just 10% of the country’s current market share, it has plenty of room to grow.
The company is majority owned by Banco Santander, S.A. (ADR) (NYSE:SAN), Spain’s largest bank. This controlling interest can be seen as a positive in the sense that Banco Santander (Brasil) SA (ADR) (NYSE:BSBR) has a “Rich Parent” relationship with SAN. Banco Santander, S.A. (ADR) (NYSE:SAN)’s experienced management team has provided guidance for SAN during recent acquisitions and also gives the company a leg-up when recruiting international clients.
Banco Santander Brasil is currently trading at half of book value with a forward P/E of 7 and a PEG ratio just over 1.
Risks to Consider: All three stocks carry considerable risk, primarily due to geopolitical concerns.
Action to Take –> These companies have been around for a while, pay dividends, and at these prices, have considerable upside potential.
My favorite stock of the three is Buenaventura. I’ve been bullish on gold miners for a while now due to the huge disconnect between their valuations and the price of gold. The stock is currently in an uptrend and should make for a great short-term investment at recent prices.
For contrarian investors eager to buy when there’s “blood in the streets,” all three stocks fit the bill.
P.S. — We’ve shown you how Banco Santander Brasil stands to benefit from its parent company. But did you know there’s a select group of “rich parents” stocks that have turned a $10,000 investment in 2001 into $177,200 today? Thanks to their “rich parent” advantage, that looks like just the beginning. To get the names of some of these stocks, click here.
– Chad Tracy
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