Brazil's Newest Equity Researcher Says Small-Caps Ones to Watch

As Brazil slides toward its worst recession since the 1930s, equity-research startup Eleven Financial Research says the best opportunities in the stock market are where almost nobody is looking: small-caps.
The unit of mergers-and-acquisitions boutique GO Capital Partners names for-profit college operator Gaec Educacao SA and software maker Senior Solutions SA among its favorites, said Adeodato Volpi Netto, Eleven’s head of capital markets. Steer clear of embattled state-run oil producer Petroleo Brasileiro SA or blue chips like Itau Unibanco Holdings SA.
"The fact that the most heavily-weighted stock on the index is a bank shows that there’s something wrong with our market," Volpi Netto said from Sao Paulo. "Our economy is a little distorted. In other countries, technology companies and manufacturers are the most valuable."
Senior Solutions, which has rallied 17 percent this year, has room to gain more than 30 percent in the next 12 months, Eleven predicts. Gaec, which operates under the brand Anima Educacao and has tumbled 65 percent this year as the government cuts higher-education spending, could rise 75 percent as education demand rebounds, the firm estimates.
Both are “well-managed companies” that “create value in the real-world economy,” according to Marcus Tsukuda, an analyst at ElevenFinancial.
The Ibovespa entered a bear market this month, and Brazil’s economy contracted 1.9 percent in the second quarter from the previous three months, the national bureau of statistics said Friday. That’s worse than the average estimate for a 1.7 percent drop in a Bloomberg survey.

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