Brazil Mining Companies, Banks to Gain, Goldman Says

Brazilian mining companies, banks, homebuilders and transportation companies will likely eclipse gains for retailers, which have led this year’s advance in Latin America’s largest market, Goldman Sachs Group Inc. said.

Homebuilder PDG Realty SA Empreendimentos & Participacoes, payment processor Cielo SA and private equity firm GP Investments Ltd. were added to the Goldman Sachs focus list of Latin American stocks, analysts at the New York-based bank said in a note today. Consumer-goods company Hypermarcas SA was removed.

“With great disparities in performance among Brazilian stocks and sectors so far in 2010, we believe it is time to rotate sectorally out of consumer and retail stocks that have been the top performers into other parts of the market, strategist Stephen Graham wrote.

Goldman also said it expects the Bovespa stock index to rise 10 percent to 78,000 by yearend from the Oct. 11 close.

Consumer goods companies led gains the MSCI Brazil index’s 6.2 percent rise this year, while energy producers were the biggest laggards. As the Bovespa rose 4.5 percent this year, retailer Lojas Renner SA and tobacco maker Souza Cruz SA surged more than 50 percent.

This contrasts a 27 percent drop for pulp producer Fibria Celulose SA and a 30 percent decline for Petroleo Brasileiro SA, Brazil’s state-controlled oil company. Goldman has “buy” ratings on Fibria and Petroleo Brasileiros, along with iron ore miner Vale SA and pulp producer Suzano Papel e Celulose SA.

Builders Rally

Homebuilders, banks and transportation stocks led gains today on the Bovespa. Builder MRV Engenharia e Participacoes SA surged 6.5 percent, leading a rally that pushed the BM&FBovespa Real Estate index up 3.7 percent. Airlines Gol Linhas Aereas Inteligentes SA and Tam SA, jumped, rising 4.9 percent and 6 percent, respectively. The MSCI Brazil Financial index rose 2.6 percent, led by federally controlled lender Banco do Brasil SA.

Vale gained 0.5 percent to 47.64 reais. Fibria fell 2.1 percent to 28.62 reais.

“Commodity stocks we think will especially shine, as developed-market central banks provide a continued flow of liquidity,” wrote Graham, who is “bearish” on Brazilian steelmakers. “Defensive utilities and telcos may not perform in the strong market we expect.”

Fed Policy

Commodities have gained since U.S. Federal Reserve policy makers said at their most recent meeting on Sept. 21 that too- low inflation would warrant looser monetary policy. The Fed will keep its benchmark interest rate on overnight loans between banks near zero through 2011, according to the survey median, longer than previously estimated.

Brazilian steelmakers won’t benefit as much from higher commodity prices because profit margins will be “squeezed” by rising iron ore and coal costs and steel imports will “pressure” prices domestically, wrote Graham.

Banks in Brazil will post earnings growth of 39 percent in 2010 and 31 percent in 2011, more than “higher-flying” retailers that have surged this year, he wrote.

“Financials of course face a different set of risks from retailers, and generally we do not expect their multiples to be as high, but the gap at the moment seems excessive,” Graham wrote.

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