The Best Play in Brazil is Traded Over-the-Counter in the U.S.
Sometimes, investing is all about being in the right place at the right time. Floundering economic conditions can set back even the best-run companies, while booms can be the rising tide that lifts all ships.

Today, we’re looking south to get our next big investment idea — toward a country with a newly booming economy. The middle class and even poor citizens are spending their money as they never have before. And as we all know, more consumers with disposable income lead to higher profits throughout the retail sector…

Thanks to better monetary policies and critical upgrades to the nation’s sovereign debt, this South American country is the perfect place for you to multiply your hard-earned dollars…

An Investment-Grade Nation

April 30, 2008 — this was the day Standard & Poor’s upgraded Brazil’s foreign currency sovereign debt to investment grade. This means a flood of international money — including bulky pension funds in the United States — will be allowed to invest in the country’s surging stock market.

The largest economy in Latin America is awake and strong. Mike Conelius, head of emerging market bond strategy for T. Rowe Price, told BusinessWeek the new rating is an “affirmation of the strong fundamental improvements we’ve seen in Brazil…It reinforces the market’s perception that Brazil has done and is doing the right things, and so now it’s a safer place for pension funds and other investors to invest their assets — it’s a seal of approval.”

In a previous article, I briefly described Brazil’s successful fight against crime at the tourist-filled beaches in Rio. Now it’s time to take an in-depth look at this booming economy’s future growth potential…

Feeding Brazil’s New Big Spenders

Brazil has managed to fix its rapid inflation problem with tighter monetary policies, which has dramatically helped its poorer citizens. Inflation fell to 4.5% in 2007, compared with triple digits in the 1990s, according to BusinessWeek. Predictions for the remainder of the year are a marked improvement. The central bank estimates further GDP growth and inflation coming in well under 5% — not to mention a $27 billion surplus.

Curbing inflation has boosted spending, among even the one-third of the population that still lives in poverty. Housing construction is up…and consumers are buying cars, cell phones and other nonessential retail merchandise.

The country’s currency — the real — is also strong, rising steadily against the U.S. dollar this year.

A Strong Working Class Brings on an Economic Boom

The real goal for a developing nation like China or Brazil is creating new consumers out of previously poverty-stricken citizens. Newfound wealth, no matter how small, can help power growth in ways unimaginable in fully developed economies in North America and Europe.

And when it comes to middle- and lower middle-class growth, there is one sector that is primed for growth: casual and fast food.

As we know from experience here in the United States, a simple cheeseburger can be a great equalizer. It’s a popular dish across the world, a cheaper alternative to a casual dining establishment when money is tight and — in the case of a developing economy such as Brazil — a new luxury for a growing class of citizens with disposable income.

Similar to most countries around the world, McDonald’s is the leading fast-food chain in Brazil. But there is one established franchise in Brazil that is growing by leaps and bounds — and giving McDonald’s some much-needed competition.

Unfortunately, this gem is a tiny over-the-counter company that is far too illiquid for Penny Sleuth. I will continue to scour this market and let you know when I find something… Until then…

Best,Greg Guenthner
June 10, 2008

P.S. A few months back I started an alert service to recommend the tiny companies that I just can’t give away in Penny Sleuth. Already we have a few big winners including one that’s up 185%.

The Best Play in Brazil is Traded Over-the-Counter in the U.S. was originally featured in the Penny Sleuth.