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. The firm identified 11 companies that fulfilled the criteria. 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% over the same period, while their forward prices-to-earnings multiple decreased by more than 40 percent.” These stocks have an implied earnings growth rate that is lower than the rest of the stock market. 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 stated in a separate statement last month that the Covid-related bump would not affect the future eCommerce penetration curve. The list also included XP Inc, a Brazilian investment management firm. U.S. shares on the company’s U.S. exchange have declined by more than 27% in the year-to-date and more than half of their value over 12 months. Morgan Stanley has found that company earnings are up by approximately 40% annually, but its P-E multiple dropped more than 50%. 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 was also cut by software company Globant. The shares that are U.S. listed have fallen 39% in the past year. Morgan Stanley discovered that the company’s earnings increased by approximately 50% over the last year while its forward PE fell more than 40%. Morgan Stanley highlighted Banco Bradesco. U.S. shares listed by the bank are expected to rise more than 20% in 2022. Morgan Stanley pointed out that the bank’s earnings increased by more than 200% in 12 months while its value fell to over 20%. — CNBC’s Michael Bloom contributed to this report.