Itau BBA’s equity strategist Marcos Severine sounds somewhat negative in his recent note, saying that he hopes for the best, but expects the worse. In this “gloomy scenario”, he recommends utility stocks like Brazilian ADRs Cemig (NYSE: CIG) and CPFL (NYSE: CPL).
According to Severine’s note:
Although we would prefer to have a more bullish outlook on 2012… we still do not see any “magical” solution to the ongoing financial crisis.
… there is no quick fix for the lack of competitiveness of European economies;
… the structural reforms might take too long;
… the risk of growth deceleration in China and of potential downward revisions in GDP growth estimates for emerging markets, including Brazil, is likely to remain in the spotlight at least through 1H12, shrinking the appetite for high-beta stocks and risky investment stories to close to zero.
This is the time for Utilities
We enter 2012 with the Brazilian Utilities sector trading at a historical peak. Although we admit that the sector, especially in Brazil, does not seem attractive from a historical standpoint … investors are likely to continue choosing assets that offer high predictability combined with good dividends and double-digit EBITDA growth … we believe there is a fairly good chance that the Utilities sector will outperform the Bovespa index for the third consecutive year.
Brazilian utility sector is not just a defensive alternative
Brazilian Utilities stocks are commonly regarded as merely “defensive” investment alternatives … many investors consider having an overweight exposure to this sector only in times of economic or political uncertainty… it is often supposed that the Utilities sector has underperformed not only the Bovespa index but also the higher-beta sectors…
Against all odds, the Utilities sector emerged as one of the best investment alternatives of recent years… Is the Brazilian utility sector just a defensive alternative? We are very much convinced that it is not.
2012 Top Picks
Energias do Brasil, Cemig (NYSE: CIG), CPFL (NYSE: CPL) and MPX.