“A good criminal is a dead criminal.”
That’s a recent quote from the man they’re calling the “Trump of the Tropics.”
This past Sunday, far-right candidate Jair Bolsonaro won Brazil’s presidential election. He defeated Fernando Haddad of the leftist Workers’ Party with 55% of the vote.
Like President Donald Trump, Bolsonaro promised to put Brazil first. His campaign slogan was “Brazil before everything, and God above all.”
And similar to Trump, he’s stirred controversy by making what some call misogynistic, homophobic, and racist remarks.
(For example, he said publicly that he’d prefer to see his son “die in an accident” than be homosexual.)
In April 2018, he vowed to give police forces in Brazil expanded authority to kill criminal suspects, saying, “a good criminal is a dead criminal.”
In a country that recorded 63,880 murders last year, people wanted change.
So they accepted Bolsonaro’s extremist policies, despite his nostalgia for Brazil’s military dictatorship.
To be clear, our interest in Brazil isn’t political…
The country has made its decision and will have to live with it. However, we continue to see money-making opportunities there as Bolsonaro attacks corruption, reduces regulations, and industrializes the nation.
Brazil Is a Bargain Right Now
On September 20, we told you once Brazil’s contentious presidential election was over, its market would recover and zoom higher.
I recommended the VanEck Vectors Brazil Small-Cap ETF (BRF). The ETF holds a basket of smaller Brazilian companies that mostly do business at home.
I liked Brazilian small-caps for two reasons:
The country was beaten down so much that I figured everything would go up… no matter who won. Plus, Bolsonaro’s “Brazil first” platform would benefit Brazilian small-caps like Trump’s “America first” platform benefited U.S. small-caps.
Brazil was insanely cheap.
At the time, BRF was the cheapest country ETF in the world based on its price-to-earnings (P/E) ratio. (The P/E ratio measures how much investors are paying for each dollar of current profits.)
BRF’s P/E ratio was 4.7. The small-cap U.S. iShares Russell 2000 ETF (IWM) was trading at a P/E ratio of 27. So BRF was trading at an 83% discount to its U.S. peer.
In the short-term, I said we could see a quick 20% bounce like we saw with IWM after Trump won the contentious 2016 U.S. election.
Shortly after that, Bolsonaro’s popularity increased, and he looked like a lock to win the election. Brazilian small-cap stocks soared…
Short of an economic collapse, I couldn’t imagine any scenario in which Brazil was heading lower. And the markets rewarded that contrarian thinking.
What to Do Now?
Brazil is still cheap. BRF would need to rise another 300% just to reach its historical valuations.
But markets don’t return to their historical valuation levels overnight. It takes a few years before investor sentiment changes. And it’s not a smooth ride.
Besides, we don’t know how the economy will react to Bolsonaro’s proposals… or if he’ll even be able to push them through. He still faces a tough opposition party.
Now that the election is over, I’d consider selling a third of the position to lock in some gains… and let the rest run.
Analyst, The Palm Beach Daily
P.S. You could consider reinvesting some of your profits from BRF into your favorite U.S. stocks. While BRF increased 23%, the U.S. market tumbled over 9% in October… Many individual stocks fell over 20%, creating great buying opportunities.
GE’s Troubles Are Getting Worse
On October 22, we told you that General Electric (GE) is a value trap. That looks like the right call.
On Tuesday, new CEO Larry Culp announced GE would cut its quarterly dividend from 12 cents to a penny.
He also said the Securities and Exchange Commission and Justice Department are investigating the company’s accounting practices.
Things don’t get much worse than that. And it shows in the chart below…
Since October 22, GE has fallen 19%. And it hasn’t traded this low since the financial crisis in 2008–2009.
GE is clearly in crisis mode right now… Beware.
From Robert C.: I just recently joined the Palm Beach Research Group, and I read an essay in the Daily praising President Trump. What I want to know now is if I joined a group associated with him. I’m not a Republican and do not want to associate with this president at all… meaning I would prefer to drop my commitment to your group as soon as possible. Please clear this up for me. Thank you.
Nick’s Reply: Thanks for the feedback, Robert. We are not affiliated with any political party. We don’t take money from any third parties to promote their services—no banks, no brokers, no political parties, no companies, etc. Our research is 100% independent.
At the Daily, we generally shy away from political debates and prefer to leave those to the talking heads on MSNBC, CNN, and Fox News. Nevertheless, when we see money-making opportunities, we strike. And sometimes presidential policies present such opportunities.
When Obamacare survived Republican attempts to repeal it, we recommended buying biotech stocks, and readers who followed our advice profited. The same happened when President Trump passed his tax plan, and we recommended buying multinationals.
Government has gotten so big that it’s impossible for it to not have an impact on the markets. Washington will give us multiple opportunities to profit. And we’d be doing a disservice to you and everyone else by avoiding an investment because it might offend someone’s political view. Investing is apolitical. Investors who want to make as much money as possible in the market should be as well.
And a reader is glad to hear Mark Ford’s timeless wisdom (See Wednesday’s issue, “Mark Ford on Three Ways to Make Money Outside the Stock Market.”)…
From Tim M.: Thank you, Mark Ford.
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