Morgan Stanley sees some buying opportunities in certain Latin America stocks amid sell-off
Morgan Stanley has found that Latin American stocks have buying opportunities whose fundamentals are strong but their valuations have fallen. Morgan Stanley recently reviewed the top 20 most liquid stocks of the region in order to identify those that have seen their earnings rise over the last year while seeing their forward price-toearnings ratios decline. 11 names were selected from the search results. The firm identified 11 names that met the criteria. “The list contains 4 commodities producing companies who have benefited from historically high crude, lithium, steel, and protein prices.” … For these names, it makes sense for their valuation multiple to de-rate because investors normally believe historically high commodity prices should eventually mean revert,” strategists led by Guilherme Paiva said in a June 6 note. We are now left with seven domestic-oriented stocks, for which the previous argument is invalid. This stock has on average “expanded its profits by close to 75% in the time period” while its forward price-to earnings multiple decreased by over 40%. The market assigned these stocks a lower implied earnings growth rates in perpetuity. Morgan Stanley has highlighted four domestic-oriented companies. E-commerce giant MercadoLibre is on the list. Morgan Stanley rates it as overweight. U.S. shares of the company are currently down 48%, and trading at 64% less than their 52-week peak. Morgan Stanley pointed out that while earnings have quadrupled over the last year, MercadoLibre’s forward price to earnings multiple has dropped by more than half. Global eCommerce stocks are now underrated. However, we believe there is a disconnect. Morgan Stanley added that, supported by their proprietary industry model we think the Covid-related bump won’t flatten the future eCommerce penetration curve.” In a separate note last week Morgan Stanley also stated this. The list included XP Inc (a Brazilian investment management company). U.S. shares on the company’s U.S. exchange have declined by more than 27% in the year-to-date and more than 50% over the past twelve months. Morgan Stanley discovered that earnings for the company have increased by 40% over the past year while its P/E multiple has fallen more than half a percent. UBS elevated XP’s price target from $31 per share to $37 last week. This was in response to an appealing valuation. The firm stated that XP was valued at a lower price than other companies with high growth in Brazil. Morgan Stanley also received a cut from Globant, a software company. The shares that are U.S. listed have fallen 39% in the past year. Morgan Stanley observed that earnings rose by about 50%, but its forward P/E fell over 40%. Morgan Stanley highlighted Banco Bradesco. In 2022, the bank’s U.S. listed shares will rise by more than 20% Morgan Stanley reported that earnings rose by more than double in the last 12 months, but its valuation fell over 20%. — CNBC’s Michael Bloom contributed to this report.