Picking winning Brazilian stocks hasn't been too hard this year, what with the iShares Brazil Index (NYSEARCA:EWZ) up about 80% year to date as the country's currency has strengthened and sentiment has improved that the economic situation has bottomed out. For steel company Gerdau (NYSE:GGB), things have been even better since my last update, as the ADRs have risen almost 75% since that April piece (with the local shares up about 55%), beating Mexico's Ternium (NYSE:TX) (up about 25%) and fellow Brazilian CSN (NYSE:SID) (up about 55%).
I see a more balanced risk-reward trade-off today. On the positive side, I do believe Brazil will recover from here and stronger demand in sectors like autos, appliances, and construction should be good for domestic steel demand, not to mention the prospects for long-term infrastructure investment. On the negative side, Gerdau is enmeshed in litigation tied to corruption and taxes, the Brazilian recovery could be prolonged, and management hasn't always been a good steward of shareholder capital.
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Both Brazil, And Steel, Appear To Be Improving For Gerdau