The Zacks Analyst Blog Highlights: Petrobras, Companhia Brasileira de Distribuicao, Banco Bradesco and Itau Unibanco Holding

News provided by

Oct 15, 2014, 09:30 ET

CHICAGO, Oct. 15, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Petrobras (NYSE:PBR-Free Report), Companhia Brasileira de Distribuicao (NYSE:CBD-Free Report), Banco Bradesco S.A. (NYSE:BBD-Free Report) and Itau Unibanco Holding SA (NYSE:ITUB-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Tuesday's Analyst Blog:

3 Picks for the Brazilian Election

On Oct 5, the first round of Brazil's presidential elections threw up an unanticipated result. Aécio Neves, the candidate of the Brazilian Social Democratic Party (PSDB) received 34% of the vote, a substantial increase from the 20% indicated by polls held some days back. This raises the possibility of a change of regime in the country which might also lead to an alternative set of economic policies.

First Round Results Surprise

The surge in vote share received by Neves, the candidate of the primary right-of-center opposition party, significantly reduces the chances of the third candidate Marina Silva. The centrist candidate, who is also an environmentalist, was poised to defeat incumbent Dilma Rousseff. The current president now leads the race with 42% of the vote. However, this is the lowest percentage polled by any leading candidate since the reintroduction of direct elections in 1989.

Several observers have ignored the results of the polls, which indicate that Neves is steadily inching closer to the presidency. However, the results of two opinion polls released on Oct 9 have indicated that the second round on Oct 26 will see a stiff battle between Neves and Rousseff. Each of these polls shows that Neves will receive 46% of the vote share, once again a first, since polls indicate that the challenger has trumped the leading candidate.

It seems Marina Silva holds the keys to the President's office. Whoever she chooses to support in the second round of elections would hold a significant advantage. Silva and Rousseff have been colleagues in the past, when the environmentalist was part of the ruling PT (Workers' Party), but have disagreed strongly on policy matters.

Given Silva's attacks on the incumbent in the first round, it is unlikely she will offer support. There are some indications that she might support Neves. In fact, the most favorable outcome for the president would be a scenario where Silva refuses to support anyone at all.

Neves Markets' Favorite

Analysts have taken the view that a victory for Neves could usher in a period of prosperity for a country plagued by several economic problems. He is viewed as a pro-growth candidate and has even declared his choice for finance minister, clearly indicating who his economic decision makers will be.

Neves is expected to attack the economic policies of president Rousseff before the next round of elections. He will blame her administration for an inflation rate of 6.5%, low rate of growth and dismal levels of productivity. Additionally, he will showcase his success during two terms as governor of the prosperous state of Minas Gerais.

The economist credits himself with preventing the state from lapsing into bankruptcy by reducing government expenditure and increasing revenues. This program has been referred to as "management shock."

He is also expected to critique the current administration for a number of scandals which has dented the reputation of the ruling Workers' Party. This includes allegations of rampant corruption and favoritism at government owned companies such as Petrobras (NYSE:PBR-Free Report).

Economic Indicators Improve

Despite these factors, Rousseff remains a frontrunner at this point. Since the restoration of democracy in 1989, no candidate who finished second in the first round has won the presidency. Despite sluggish growth and rising inflation, unemployment is at a record low of 4.9%, significantly lower than the 12.3% when the PT first won elections in 2003. The quality of employment has also increased with the percentage of workers in the informal sector declining to 13% from 22%.

According to data released last month, Brazil grew at 1.5% in July compared to June. This is the largest monthly increase in the last six years according to the country's central bank. The bank's gauge of economic activity, an indicator of GDP levels, increased in July after falling for two successive months.

Additionally, a survey conducted by the country's central bank revealed that analysts have revised their growth forecast for 2014 upward. The weekly survey of 100 respondents from private financial institutions indicated that the economy may grow at 0.28% compared with earlier expectations of an increase of 0.24%.

This was the first increase in the forecast for 2014 in 19 weeks. Government estimates for growth remain at 0.9%. Market watchers believe Brazil will grow at 1% in 2015 with an inflation rate of 6.3%.

Policy Changes Ahead?

Rousseff has stated that she will reshuffle her cabinet, indicating that finance minister Mantega may be removed. Mantega initiated temporary policy measures to weaken the Brazil's currency and stimulate growth. These steps led to confusion among investors and could not control inflation. Ultimately, the central bank was forced to increase rates, reducing growth further.

Market watchers believe the incumbent will reverse several unpopular policy measures. She has also indicated that she will allow Brazilian real to appreciate. Rousseff will need a strong replacement for Mantega if she wishes to bolster her chances of re-election. Neves remains the market's favorite and is expected to radically change policy if he wins. But even a win for Rousseff could initiate changes in the country's economic policies.

Our Choices

Below we present three stocks which will gain from these trends, each of which also has a good Zacks rank.

Companhia Brasileira de Distribuicao (NYSE:CBD-Free Report) is a retailer of food, home appliances, clothing, drugs, fuel and other products. The company utilizes various store formats to distribute its products and owns several brand names. It has four major divisions, retail, cash and carry, e-commerce and home appliances.

Companhia Brasileira holds a Zacks Rank #1 (Strong Buy) and has expected earnings growth of 6.7%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 17.85.

Banco Bradesco S.A. (NYSE:BBD-Free Report) is a bank which offers a wide range of financial products and services targeted at individuals as well as corporate customers. Its range of operations includes investment and international banking. The bank operates within the country as well as in foreign nations and has several subsidiary companies.

The company currently holds a Zacks Rank #2 (Buy) and has expected earnings growth of 27.3%. It has a P/E (F1) of 10.64x.

Itau Unibanco Holding SA (NYSE:ITUB-Free Report) is a holding company whose primary operations are related to the banking sector. The company has four operating segments. These are commercial banking, consumer credit, market and corporation activity and Itau BBA. Through Itau BBA, the company provides business banking and investment banking services.

Apart from a Zacks Rank #2 (Buy), Itau has expected earnings growth of 27.4%. It has a P/E (F1) of 10.41x.

Economic issues are playing a crucial role in Brazil's election. Regardless of who wins, a change on the policy front is certain as the country looks to boost growth. Given these factors, adding these stocks to your portfolio would be a prudent choice.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros.

Get the full Report on PBR - FREE

Get the full Report on CBD - FREE

Get the full Report on BBD - FREE

Get the full Report on ITUB - FREE

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
[email protected]
http://www.zacks.com

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Logo - http://photos.prnewswire.com/prnh/20101027/ZIRLOGO

SOURCE Zacks Investment Research, Inc.