Wind will continue to be the key in Brazil with the most profitable returns in the energy generation sector, according to analysts at Itaú BBA.
The utilities sector actually had negative performance last year in most countries — Russia was a glaring exception — but it may be a better place to play in 2011.
It has been a rough start to the year for Latin American stocks after being the sweetheart of global emerging market investing over the last couple of years.
Valuations have become a little stretched, and the pullback driven by macro concerns on policy and commodity demand retreat have hit certain parts of the sectors harder. All countries have been hit, but the crowded trades (Brazil) and the politically challenged (Argentina) have in many cases underperformed. Steel and Copper names litter the list.
I have complied a trading list based on a screening I conducted for the largest market cap names that are ADR tradable, have underperformed and where there is either an oversold condition (based on RSI to chart) or valuation improvement to warrant a hard look.
Here is the list to pick over:
Resources: Cemex (CX), Gerdau (GGB), Petrobras (PBR), Ternium (TX), Southern Copper Corporation (PCU), Freeport-McMoran Copper & Gold Inc. (FCX), Grupo Simec (SIM)
Telco/Utilities: BBrasil Telecom (BTM), Tele Norte Leste Partricipacoes (TNE), Centrais Eletricas Brasileiras (EBR)
Banks: Itau Unibanco Holding (ITUB), Banco Bradesco (BBD) Banco Macro (BMA).
With U.S. Fed consuming all markets everywhere, many are sidelined. Having said that, select emerging markets have had a strong day.
Brazil is slightly up on the day and is testing the 69,400 level. Airlines are leading the way, with TAM S.A. (TAM) up 7 percent after filling for its Multiplus subsidiary IPO. Energy names are also outperforming giving crude strength supported by bullish Department of Energy inventory data out this morning that most expected would run in the other direction.
Petrobras (PBR) is seeing some short covering and some new positions after what has been mostly sideways trading for six weeks. Utilities and telcos are underperforming (see Centrais Eletricas Brasileiras (EBR) for exposure to core electricity in Brazil) on the usual sector rotation out of defensives into cyclicals.
Mexico trading up in line with the region.