Facebook
Twitter
Copacabana and Ipanema run perpendicular to each other. A 20-minute walk will get you from one beach to the other. Despite being in close proximity, Copacabana and Ipanema are worlds apart.
Copacabana is a crescent-shaped, easterly beach. It sits at the mouth of Guanabara Bay, home to a key commercial shipping port. To the east lies Itacoatiara, a peninsula that shelters Copacabana from direct Atlantic currents. Itacoatiara ensures calm waters and a plethora of paddle-boarders for Copacabana.
Ipanema, in contrast, faces south into the open Atlantic. Its waters roil with continuous waves, but a flat, sandy bottom produces no undercurrent. Ipanema’s beach topography enables one to bob about on the waves carefree.
Of the two, Ipanema is the better beach – by far. When the currents are right, Ipanema’s waters turn as turquoise and clear as any water the Caribbean can offer. Just as important, the currents help Ipanema remain debris free.
At Copacabana, the question isn’t paper or plastic; there is no question: you’re getting both. The shipping channel runs past Copacabana into Guanabara Bay. Calm waters situated near a major commercial complex ensure a steady inflow of plastic bags, plastic water bottles, straws, and plastic utensils washes. But the paper, more than anything, is what’s most off-putting. One can only imagine its origin, but one would prefer not to.
If it sounds like I’ve personally trampled terrain in Brazil, I have. I’ve also trampled terrain in most of Mexico, Central America, much of the Caribbean, and every county in Western Europe except two.
I was in Cancun when tourism ground to a halt because of the swine flu scare last decade. I was in Mazatlan when Mexico’s most notorious drug merchant, “El Chapo” Guzman, was apprehended by Mexican federales (the first time). Guzman’s hideout was less than a mile from, and on the same boulevard as, the condo where my wife and I stayed.
I was in Crete and Santorini when Greece’s economy was putatively on the verge of collapse. Credit was accepted, but cash was fast becoming king.
I was in Portugal when its finances were on wobbly ground and investors were fearful of default. I witnessed a bank run in Lisbon.
I was in Brazil, my latest major sojourn, when disenchantment with President Dilma Rousseff was spreading like Zika virus. Talk of impeachment was both open and amplified. Brazil’s currency, the real, hit an all-time low against the U.S. dollar (great for me, not so great for Brazil’s businesses). By this recent New York Times headline, you’d think collapse was imminent: “Fight to Impeach Brazil’s Leader Tears at Fabric of Daily Life.”
My No. 1 takeaway? Everything reported about everywhere I had been was blown out of all proportion. Therefore, I can say with confidence that Brazil’s fabric remains intact. Politics matter little to most everyone. Very vocal and very small minorities are the exception.
I’ve also learned from my travels that things are never as good or as bad as reported. At least that’s my experience in Western-culture democracies and republics that allow you to come and go as you please. (I imagine things are as bad as reported in the socialist dystopian outposts of North Korea and Cuba.)
I’ve also learned that profits can be had investing against what’s popularly reported, including Brazil. Yes, Brazil has no shortage of social problems – political corruption, poverty, unemployment – but the fabric is intact. Many Brazilian investments, though, are priced as if the fabric is torn and frayed.
Gerdau SA (NYSE: GGB) is one such investment that appears frayed at the edges.
Gerdau is Brazil’s largest steelmaker, and the largest maker of long steel in the Americas. Gerdau’s 115-year history makes it one of Brazil’s oldest companies.
Gerdau has its share of problems: A steel glut has driven down prices. Demand is down, as are revenue and earnings. But steel is a cyclical business. Demand, revenue and earnings in the metals sector ebb and flow. As it is, all three are ebbing. Gerdau’s share price, as you’d expect, has also ebbed. The American depositary receipts trade on the New York Stock Exchange for about $2 each. Five years ago, they were $12 each.
As I say, Gerdau is cheap: Its shares trade at a third of revenue and less than 40% of book value. The company is expected to turn a profit this year. Earnings are expected to post at $0.30 per share, which means they trade at roughly seven times estimates.
But things are looking up more than most investors realize. Brazil’s real has reclaimed ground lost to the U.S. dollar. The real is up nearly 10% against the dollar year-to-date. This is a sign of returning investor confidence. At the same time, Gerdau shares are up 100% year-to-date, and Gerdau is still cheap after the run-up.
As the perception of Brazil improves – which will occur once the Rousseff matter is settled and the Zika virus is forgotten – Gerdau should have no trouble reclaiming even more ground. At least, that’s been my experience. It has been Gerdau’s experience for the past 115 years.
How to Sleep Easy at Night
Is the economy keeping you up at night? Do you worry there’s another crash just around the corner? If so, you can stop worrying right now. All it takes is a few minutes.