With $1.43 trillion of GDP, Brazil is the 12th world’s largest economy and largest one in Latin America. Last year, the country’s GDP dropped by 4.1%, registering the largest contraction in the last 20 years, and left the ranking of the world’s ten largest economies. By the end of 2021, GDP in Brazil is forecast to reach $1.62 trillion and $1.75 trillion in 2022. A decade ago, Brazil was considered the fastest-growing economy in the world, however, after a recession in 2014, the country’s growth slowed down and recovery started only after 2016.
Last month, the Brazilian government decreased its forecast for economic growth in 2021 to 5.1% from 5.3% and raised its inflation forecast to 9.7% from 7.9%. In its statement, the economy ministry said that it decided to cut the GDP outlook because of higher interest rates. In November, Brazil’s central bank raised its benchmark interest rate by 150 basis points to 7.75% in an effort to curb inflation. In addition, there was the adverse impact of a deteriorating international situation, including the energy crisis affecting several countries in Europe and the breakdown of production chains. The government also lowered the economic growth outlook for 2022, from 2.5% to 2.1%, while inflation rates are expected to reach 4.7%, instead of the previously forecast 3.75%. According to the Brazilian authorities, the strength of the labor market recovery is sufficient to guarantee growth above 2%. “With the recovery of informal employment, we expect the participation rate and the level of employment to return to historical levels and help the country grow at the projected rate,” the statement reads.
“An emerging recovery in demand, both domestic and external, and a pick-up in commodity prices are expected to push GDP growth to 5.3 percent in 2021. Rising vaccination rates also contribute to the expected improvements in growth rate. However, the path to a full recovery in the medium-term remains steep given Brazil’s preexisting structural and fiscal vulnerabilities and the impact of inflationary pressures on the economy,” the World Bank analysts say.
The coronavirus pandemic has dealt a significant blow to Brazil’s economy, resulting in a 4.1% GDP decline in 2020. Brazil has become the second country in the world in terms of absolute deaths associated with coronavirus infection and eight in terms of per capita deaths. By the end of September, there were over 590 thousand confirmed COVID-19 deaths and around 21 million cases. Although COVID-19 deaths and cases have now dropped below April’s peak, Brazil still accounts for 16% of all COVID-19 deaths in the world.
Brazil is the world’s 11th largest recipient of foreign direct investments and the largest one in Latin America. The bulk of investment goes to oil and gas, automotive industry, financial services, commerce, chemical, and electricity industries. The main investing countries include the USA, the Netherlands, Spain, Germany, Luxembourg, and the Bahamas. While FDI into Brazil hit its highs in the period from 2009 to 2011, the capital influx slowed down in recent years. According to the World Investment Report 2021, FDI inflows in Brazil have dropped by 62%, from $65 billion in 2019 to $25 billion in 2020. The key factor behind this was the coronavirus pandemic which caused the suspension of the privatization program and infrastructure concessions. The most severely impacted sectors included transportation (85% decline in FDI inflows), financial services (70%), oil and gas (65%), and the automotive sector (65%).
Despite this, some significant investments were made in Brazil in the midst of the pandemic. For instance, in January 2021, U.S-based New Fortress Energy unveiled its plans to purchase the natural gas company Hygo Energy Transition Ltd for $2.18 billion in an effort to expand its presence in the country. BP PLC and EIG Global Partners were also reported considering multibillion-dollar investments in Brazil.
Investment Opportunities by Sector
The main contributor to GDP is the service sector that is the largest one in the country. As of 2020, Brazil’s service sector accounted for about 63% of the country’s gross domestic product. The share of the industry sector in Brazil’s GDP has decreased from 23.2% in 2010 to 17.6% in 2020. The share of agriculture has slightly increased from 4.1% to 5.9% during that period of time. It should be noted that countries with economies built on the service sector are considered more advanced than agricultural or industrial ones.
The Service Sector
The services sector is the largest one in Brazil and is the country’s biggest employer. The major subsectors include retail sales, hospitality, financial services, and personal and professional services. For today, the financial subsector is the most important one of Brazil’s services industry. Banks provide funding for large projects across a variety of industries ranging from aerospace to mining. Apart from financial services, tourism and travel are other essential components of the Brazilian service sector, contributing approximately 2.9% to the country’s GDP before the pandemic. This includes revenues from travel agencies, hotels, restaurants, and airlines.
In the era of digital transformation, technology companies are in full development in Brazil and worldwide. Among Brazilian companies, some attractive technology stocks include TOTVS and Locaweb. TOTVS S.A. (TOTS3.SA) develops integrated management software solutions, collaboration, and productivity platforms, and offers consulting services. The company is especially known for its enterprise resource planning (ERP) solutions. Founded in 1983, the company has a number of subsidiaries and operates not only in Brazil but also in Argentina, Mexico, Colombia, Portugal, and the USA. Its annual revenues have increased from 1.9 billion Brazilian reals in 2017 to 2.6 billion Brazilian reals in 2020. Gross profit and net income have also grown significantly. This year, the company continued to grow and posted 854 million reals in revenues for the third quarter of 2021. At the beginning of 2021, TOTVS S.A acquired RD Station, the largest player in the marketing automation space for $32.5 million, something that became Brazil’s largest private acquisition deal in the software sector.
Locaweb Serviços de Internet S.A. (LWSA3.SA) offers hosting and cloud services in Brazil as well as online payments solutions for small and large businesses. The company completed an initial public offering on the Sao Paulo stock exchange in 2019 and its stock has been rising until April 2021 after which it began to decline. In 2020, the annual revenue of Locaweb Serviços de Internet S.A. was 488 million Brazilian reals, a 22% increase from the previous year and 34% up from 2018.
Throughout the year 2021, the e-commerce industry has received an additional boost due to restrictions related to the coronavirus pandemic. The number of purchases made via the Internet has increased sharply, strengthening digital commerce. Brazil is the 15th largest market for eсommerce, ahead of the Netherlands and behind Italy. The Brazilian e-commerce market is growing at a rate of 28% and generates total revenue of $22 billion. The biggest player in the market is Magazine Luiza S.A. (MGLU3.SA) that runs an e-store called magazineluiza.com.br with a revenue of $2.6 billion in 2020. The company’s total revenue amounted to 29.1 billion Brazilian reals, a significant increase from 19.8 billion Brazilian reals in 2019 and 15.6 billion Brazilian reals in 2018. Magazine Luiza S.A. is followed by privately held Casas Bahia, an online network that sells electronics, housewares, and furniture. Americanas.com.br operated by Lojas Americanas S.A. (LAME4.SA) is third with a revenue of $875 million. These three stores account for 20% of online revenue in Brazil.
In the financial services subsector, big banks are of particular interest. They report profits in the billions and are ranked by Forbes as Brazil’s largest publicly-traded companies. According to the Forbes list, Itaú Unibanco Holding S.A. (NYSE:ITUB) with almost $390 billion of assets is the largest public company in Brazil and 109th largest in the world. It is followed by Banco Bradesco S.A. (NYSE:BBD) with $306 billion of assets, Banco do Brasil S.A. (BBAS3.SA) with $314 billion of assets and Banco BTG Pactual S.A. (BPAC11.SA) with $45 billion of assets.
In Brazil, where five banks control nearly the entire market, alternatives, such as the digital banking startup Nubank, are of particular interest. Nubank, whose parent company is Nu Holdings Ltd. (NUBR33.SA), was backed by Warren Buffett’s Berkshire Hathaway which bought around 30 million shares for $250 million during the bank’s IPO in December. Investors participating in the IPO include SoftBank Group Corp. and Tiger Global Management LLC. Nubank expects to raise around $2.6 billion and is already valued at over $42 billion, exceeding the country’s biggest traditional bank, Itaú Unibanco SA. Freshly listed on the New York Stock Exchange, Nubank has quickly become the largest bank in Latin America by market capitalization. The bank, which operates as a digital financial services platform, has increased its customer base tenfold to 48 million in just 4 years. And yet, some experts believe that this stock may be risky because of some weaknesses in its financial reporting and the fact that traditional banks can launch rival products to poach Nubank’s clients.
Agriculture
Brazil, which used to be a net food importer, is now among the world’s largest exporters of agricultural products. Although it cannot be classified as an agricultural country, the sector plays a notable role in Brazil’s economy. The country boasts a fast-growing agribusiness sector, which has been contributing significantly to economic progress in Brazil over the years. Both production and exports of Brazil’s agricultural products are well diversified, which was made possible due to the use of modern technologies, research and development activities, and government financial support. Moreover, in the 1970s, extensive areas of the Brazilian Amazon were settled by landless farmers, something that also played a role in the development of the country’s agricultural sector.
According to an analysis by the U.S. statistical agency The Economic Research Service (ERS), Brazil’s agricultural production will continue to rise thanks to an increase in productivity and additional land available for farming. Moreover, growing per capita income and population growth will stimulate domestic demand for agricultural products. The production of agricultural products and livestock has risen considerably over the last two decades. In addition to being one of the major contributors to the country’s GDP, the sector provides around 9% of Brazil’s total employment. The key agricultural products grown in Brazil include sugar, chicken, beef, soybeans, coffee, corn, and orange juice. Brazil has become a leading exporter of coffee, meat, corn, soybeans, ethanol, and sugar.
“Brazil’s emergence as one of the world’s most competitive agricultural exporters has been supported by macroeconomic policies. The country has been able to rapidly expand its agricultural exports in recent years, despite experiencing one of its worst recessions during 2014-16, falling international commodity prices, and the detrimental economic impacts from the COVID-19 pandemic,” ERS notes.
Brazil is the world’s largest coffee producer and has been dominating the global coffee market for over 150 years. However, out of the world’s largest publicly traded coffee companies, none is Brazilian. As of 2019, Brazil exported $26 billion in soybeans, making it the first largest exporter of soybeans in the world. The main factor behind the country’s emergence as the top soybean exporter in the world and its successful competition with the USA for China’s market is Brazil’s long-term strategy of cultivating the large tracts of land in savannah areas known as the Cerrados. Amaggi Group headquartered in the Brazilian city of Cuiabá is the largest private producer of soybeans in the world. Other large Brazilian companies involved in the production or sale of soybeans, such as Fiagril Participações S.A. and Coamo Agroindustrial Cooperativa, are privately-held companies. The U.S.-based private company Cargill and another American company, publicly-traded Bunge Limited (NYSE:BG) are the largest exporters of soybean and corn from Brazil.
Brazil is the world’s second-largest producer and consumer of fuel ethanol. Ethanol is produced by the fermentation of sugars from grains and other biomass materials and is used as a fuel additive, solvent, disinfectant, pharmaceuticals, and in other applications. In the long term, the adoption of biofuels is expected to rise at considerable rates driven by global efforts to cut greenhouse emissions. Last summer, Brazilian ethanol exports reached the highest level in seven years. In June of 2020, the country’s ethanol exports amounted to 298.84 million liters, up 75% from June 2019 and the highest for any June since 2013. From total exports, over 43% of ethanol exports were shipped to the USA, while South Korea was the second-highest importer.
However, in June 2021, Reuters reported that Brazil and the USA, the world’s top two ethanol producers, were expected to constrain their ethanol production because of the rising cost of sugar and corn. Moreover, Brazilian mills are dealing with a drought-hit sugarcane crop and Ethanol prices at mills in Brazil are reaching their highest ever at around $2.55 per gallon. Fuel distributors have to add 27% of ethanol to gasoline, something that has risen prices. Fuel retailers have already asked the Brazilian government to lower requirements for ethanol blending to help them reduce costs. Brazil’s sugar cane crop was forecast to drop by 7% in 2021 because of droughts. With less cane, mills are expected to favor sugar over ethanol in their production mix.
Brazil has launched the national biofuel policy called RenovaBio with the aim to achieve the environmental commitments of the Paris Agreement. To this end, Brazil will increase ethanol production from the current 33 billion liters to approximately 50 billion liters by 2030. The major advantage of ethanol blend in fuel is an immediate CO2 reduction without the need for expensive changes in the infrastructure. Cosan S.A. (NYSE: CSAN) is one of the key market players, along with the US-based Bunge Limited (NYSE:BG) and the Brazilian private company Odebrecht Agroindustrial S.A. Cosan S.A.is a Brazilian conglomerate producer of bioethanol, energy, and sugar that operates not only domestically but also in Argentina, Uruguay, Paraguay, Bolivia, and the UK.
Cosan is one of the largest corporations in Brazil that controls the nation’s top natural gas distributor Comgas (CGAS5.SA) and is a partner of Royal Dutch Shell Plc (RDSa.L) in the Brazilian joint venture Raizen (RAIZ4.SA), the largest sugar producer in the world and a leading ethanol maker. In October, Cosan joined the U.S.-based Fifth Wall Climate Tech Fund as an investor and partner. This will give the company preferential access to investments in startups that are working on lower-carbon solutions. “We are looking at the returns of the fund itself, as an investor, but more importantly it is to have exposure to companies that are transforming the way society lives,” Cosan CEO Luis Henrique Guimaraes told Reuters.
In the third quarter of 2021, Cosan reported record adjusted EBITDA of 3.4 billion Brazilian reals (+7%) and net income of 3.3 billion Brazilian reals, the highest net result in the history of the company. Net revenue amounted to 31 billion Brazilian reals, 59% up compared to the previous year, while cash generation was 8.34 billion Brazilian reals versus 2.49 billion a year earlier. Cosan’s annual revenues have been steadily rising from 36 billion Brazilian reals in 2013 to almost 73 billion in 2019. The exception was the year 2020 when the company saw a decline in revenues.
Brazil has the world’s largest bovine herd and is the biggest exporter of this kind of meat with a global market share of more than 14%. But in terms of exported meats, including poultry, beef, and pork, Brazil is second and accounts for around 13% of the world’s total. The Brazilian cattle industry is dominated by JBS, Marfrig, and Minerva. The largest meat processing company in Brazil and the world is São Paulo-based JBS S.A. (JBSAY). With a market capitalization of 16.2 billion, the company is active in 15 countries and runs around 150 facilities all over the world. Around two-thirds of JBS’s sales account for the United States, while the remaining portion of its sales goes to Latin America. Total revenues and gross income of JBS SA have been steadily rising over the last five years, except for 2017 when the company saw a slight decline. In November, JBS SA posted a third-quarter net income of 7.58 billion reais or $1.38 billion, above the average of analysts’ estimates at 5.68 billion reais. JBS's net revenue surged 32% to 92.62 billion reais in the quarter. The company showed double-digit margins in its units in the U.S. and Brazil. The company's Seara unit, which is engaged in pork and poultry processing, achieved net revenue growth of 38% due to rising sales volumes and prices. EBITDA reached 13.92 billion reais, above the average of analysts’ estimates at 12.21 billion reais.
Marfrig Global Foods S.A. (MRRTY) is the second-largest beef company by production capacity in Brazil and the world and is also the world’s largest burger producer. Marfrig has three dozen units of cattle industry across Latin America and over 30 units of chickens all over the world. In 2020, Marfrig Global Foods recorded net revenues of 67.5 billion Brazilian reals, an increase of 35% from 2019. In the third quarter of 2021, Marfrig’s net revenue reached 23.7 billion Brazilian reals and an EBITDA was more than 4.7 billion Brazilian reals, the highest results in the company’s history. Minerva S.A. (MRVSY) is an export-oriented beef company. Its activities are divided into a meat segment and a livestock segment. Minerva produces and sells fresh beef, pork, and poultry, as well as manufactures cattle byproducts. The Livestock unit specializes in live cattle export. From 2016 to 2020, Minerva’s total revenues have risen from 9.6 billion to 19.4 billion Brazilian reals. In 2021, its revenues continued to grow on a quarterly basis, reaching 7.4 billion reals in the third quarter.
BRF S.A. (BRFS), which focuses on raising and slaughtering poultry and pork, is the world’s largest chicken exporter. In mid-December, shares in BRF SA skyrocketed after the company offered a capital increase through the issuance of 325 million new common shares with the aim to raise around $1.17 billion. Some analysts believe that the minority shareholder Marfrig Global Foods SA, which already owns a 33% stake, may try to acquire a controlling stake in BRF S.A. Earlier this month, BRF SA unveiled its plans to invest 55 billion reais or $9.8 billion by 2030 to expand the business. Following the implementation of this plan, BRF SA expects its net revenues to reach 65 billion reais a year by 2024. For comparison, the company posted 29.7 billion of revenues in 2018 and 10.1 billion Brazilian reals in 2017. “The main drivers are a greater availability of fatty cattle… a high demand for meat and we are also benefiting from this because (American) consumers ate a lot more at home than in restaurants,” said Tim Klein, CEO of North America Operations.
The major challenge that Brazil’s major meat-producing companies have faced recently is the decision made by six European retail groups to suspend beef purchases because of new scientific findings linking cattle production in Brazil to deforestation in the Amazon. “The alleged wrongdoings are related to indirect cattle suppliers for JBS SA, the world’s largest beef exporter, Marfrig Global Foods SA, the second-largest, and Minerva SA, the leader in South America exports,” the report said. Indirect suppliers are farmers who raise cattle to sell to other producers, who then sell them to the slaughterhouses. Scientists have found out that Brazil’s cattle industry is the main driver of deforestation in the country.
Industry
Brazil’s industrial sector is developed and diversified as a result of the country’s import-substitution industrialization policy implemented in the middle of the 20th century. At first, the import substitution policy focused on non-durable goods but then expanded to durable goods. Industrial growth in Brazil was high in the period from the 1970s to the 1980s but slowed down in the 1990s. As of today, the country’s most developed industries include automotive, petroleum processing, steel, and cement production, aerospace, and chemical industries. Additionally, the food and beverage industry also plays an essential role in the country’s economy. The main drivers of industrial development in Brazil are the abundance of raw materials and cheap labor.
In 2020, Brazil was the 7th-largest oil producer in the world. The country produced an average of 2.94 million barrels of oil per day, which was 5.5% more than in the previous year. One of the main reasons for Brazil’s oil boom is the discovery of new offshore oil deposits, encouraging both foreign oil companies and domestic Petróleo Brasileiro S.A. - Petrobras (PBR) to establish new refineries. Brazil was the only South American country to have an increase in oil production last year compared with 2019.
A report by S&P Global Market Intelligence suggests that global metals prices are expected to remain above historical averages all the way through 2025. In Brazil, steel production is concentrated among 4 large companies, most of which are domestically-owned. Gerdau S.A. (GGB) is the largest producer of long steel in Latin America and one of the world’s largest suppliers of specialty long steel. The company operates steel mills in Brazil, Argentina, Colombia, Mexico, Venezuela, Canada, the United States, and other countries. In the third quarter of 2021, the steelmaker’s net income surged 604% to 5.59 billion Brazilian reals or $991 million, driven by high global prices for steel and robust demand from the construction industry in Brazil and the United States. EBITDA increased by 228% to 7 billion Brazilian reals, while steel production was up by 7%.
Other major steelmakers include Usinas Siderúrgicas de Minas Gerais S.A. or simply Usiminas (USIM5.SA), Companhia Siderúrgica Nacional or CSN (NYSE:SID), and ArcelorMittal Brasil, a private company and subsidiary of Luxembourg-based ArcelorMittal (MT.AS). For the third quarter of 2021, Usiminas reported a 60% decline in net income from the second quarter, EBITDA was down 43%, while net revenue fell 6% on a quarter-on-quarter basis to 9 billion Brazilian reals. At the same time, the company’s quarterly results were stronger as compared to the same period of 2020, with net income surging 821% and net revenue increasing 106% year on year. And yet, Itau BBA analysts say that the results are disappointing and the company’s EBITDA is 4% below their expectations. Usiminas stock dropped 4% with the news.
CSN is Brazil’s second-largest steel manufacturer that also operates in cement, mining, energy, and logistics segments. Over the last five years, the company’s total revenues have been on the rise and amounted to 30 billion Brazilian reals in 2020. In the third quarter of 2021, CSN’s net profit came in 1.3 billion Brazilian reals, 5% up compared to the same period last year, while net revenues increased 18% and EBITDA rose 23% year over year. At the same time, sales volumes of steel and iron ore decreased by 23% and 11%, respectively. In September, the company was reported to be preparing for the acquisition of Switzerland-based Holcim’s Brazilian cement business for $1 billion, including 5 integrated cement plants, 4 grinding plants, and 19 ready-mix concrete facilities.
Brazil is the sixth-largest car market globally and is amongst the 10 leading passenger vehicle manufacturers worldwide. Around 5,800 companies are operating in the sector, the majority of which are dealers, 484 companies operate in the auto parts segment, and 26 companies are vehicle manufacturers. The Italian-American multinational corporation Fiat Chrysler Automobiles is the leading dealership brand in Brazil, with approximately 17% of the market share. Other major brands include Volkswagen, General Motors, and Ford. In January 2021, Ford closed all 4 of its manufacturing facilities in Brazil and now only plans to sell imported vehicles. Mercedes has also closed its passenger vehicle production facilities in Brazil to focus on the manufacturing of commercial vehicles and trucks. Some local manufacturers like Gurgel, Miura, and Puma tried to launch domestic vehicle production but without much success, because it was hard to meet the expectations of Brazilians who have grown accustomed to international brands.
Renewable Energy
Hydropower is the largest source of energy for Brazil (66%), followed by biomass power plants with an 8% share of the country’s electricity generation. Wind and solar power generation have grown quickly in recent years and had a combined 11% share of total electricity generation in Brazil in 2020. Most of the country's hydropower capacity is installed north in the Amazon River Basin, however, electricity demand centers are located along the eastern coast. Brazil relies heavily on a single source, hydropower, and has to tackle such challenges as the long distance between hydropower generation and demand centers, droughts, and deforestation.
In order to diversify its power generation sources, Brazil plans to increase domestic production of natural gas and now has around 34 natural gas-fired power plants with a total generating capacity of more than 11,000 MW. Non-hydro renewables are the fastest-growing technologies in Brazil. The country has abundant wind resources and has a total wind capacity of 17,198 MW in 2020. Although solar power still accounts for a small share of Brazil’s energy generation, it more than doubled from 3.5 billion kWh in 2018 to 6.7 billion kWh in 2020.
The most notable market players include Centrais Elétricas Brasileiras S.A. - Eletrobrás (EBR) that operates 31 hydroelectric plants and generates electricity through hydroelectric, nuclear, thermal, wind, and solar plants, Rio Paranapanema Energia S.A. (GEPA4.SA) that runs 10 hydroelectric plants, Engie Brasil Energia S.A. (EGIE3.SA) with 13 hydroelectric power plants, 4 thermal power plants, 3 biomass plants, 38 wind farms, and 2 solar power plants.
Largest Publicly-Traded Companies in Brazil
Petróleo Brasileiro S.A. - Petrobras (PBR)
Petrobras, the largest oil and gas player in Brazil, is more than 50% owned by the Brazilian government. It is also the largest Brazilian company by market capitalization ($71.6 billion). Petrobras focuses on drilling, refining, and transporting crude oil from both onshore and offshore fields. Additionally, the company is engaged in the exploration, production, and transportation of natural gas, exports of ethanol, and biodiesel production.
Fitch Rating highlights the company’s strategic importance to Brazil and notes that the government has very strong incentives to support Petrobras should the need arise. “Fitch Ratings considers the linkage between Petrobras and the government to be strong as a result of the government’s majority ownership and control of the company and the evidence of a strong support track record,” the agency says. Meanwhile, President Jair Bolsonaro said in October that Petrobras was making too much profit and should contribute more to society. In addition to being the country’s largest producer of the fuel, Petrobras controls prices for diesel and gasoline in Brazil.
Petrobras revenue for 2020 amounted to 272 billion Brazilian reals, a decline from 2019 when it posted 302 billion Brazilian reals in revenue. In October, Petrobras announced mixed production figures for the third quarter of 2021 as it increases output at several oilfields but, at the same time, gets rid of some assets within its divestment plan. For instance, at the end of December, the company said it would sell a group of onshore assets and related infrastructure located in the Sergipe Basin to Carmo Energy S.A. for $1.1 billion. In the third quarter, the output amounted to 2.83 million barrels of oil equivalent per day, a 1.2% increase in quarterly terms, but down 4.1% from the third quarter of 2020.
Itaú Unibanco Holding S.A. (NYSE:ITUB)
Forbes ranks Itaú Unibanco Holding S.A. as the largest public company in Brazil with $37 billion of annual sales, $3.7 billion of profit, approximately $390 billion of assets, and $36.7 billion of market capitalization. Itaú Unibanco is the largest bank not only in Brazil but also in Latin America. The bank has more than 3,500 branches in Brazil and 55 million customers globally. Itaúsa, a Brazilian multinational conglomerate, is the bank’s parent company. The largest shareholder is the American mutual fund company Dodge & Cox that holds a 4.5% stake in Itaú Unibanco Holding S.A.
In November, Itaú Unibanco Holding S.A. was selected to compose, for the 22nd consecutive year, the portfolio of the DJSI World. It is the only bank in Latin America to have been part of the index since its creation 20 years ago. Dow Jones Sustainability World Index (DJSI World) includes companies that are global leaders in sustainability and have the best rating in economic, environmental, and social factors. In the third quarter of 2021, the bank reported recurring earnings of 6.8 billion Brazilian reals or $1.3 billion, a more than 34-percent increase from the previous year. Net income has also risen substantially to $5.8 billion Brazilian reals or $1.11 billion. Broadly speaking, the outlook for Itaú Unibanco Holding S.A. looks encouraging. However, inflating expenses and heightening competition may be a concern, experts say.
Vale S.A. (NYSE:VALE)
Headquartered in Rio de Janeiro, Vale S.A. is the world’s largest producer of iron ore and nickel and second-largest Brazil’s public company by market capitalization ($67.4 billion). In 2020, the company produced 300 million tons of iron, leaving behind its closest competitors, the Anglo-Australian miner Rio Tinto and Australian BHP. Vale’s largest operation is the Carajás mine located in northern Brazil, which is also one of the world’s biggest iron ore mines. Vale’s production operations are mainly carried out in Brazil as this country is the second-largest by iron ore reserves after Australia. Although Vale’s iron ore output has dropped from the previous years, the company aims to achieve a production capacity of 400 million tons per year by the end of 2022. In addition to iron ore and nickel production, Vale is also engaged in the mining of copper, manganese, cobalt, potash, ferroalloys, and bauxite. Moreover, the company operates 9 hydroelectricity plants and an extensive network of railroads and ports.
In the third quarter of 2021, Vale SA posted a net profit of $3.9 billion, significantly below analysts’ forecasts of $6.2 billion. The main reason for the decline was a 31-percent drop in prices in the reported period as well as a labor disruption at the company’s Sudbury nickel mine in Canada. At the same time, while the company’s income declined by about half from the second quarter, it rose 34% from the same period of 2020. For Vale’s upcoming earnings report, Wall Street analysts expect the company to post earnings of $0.68 per share, a 37% decline year over year, and quarterly revenue of $11.5 billion, down 22.13% from the previous year.
Ambev S.A. (NYSE:ABEV)
Ambev S.A., formally known as Companhia de Bebidas das Américas, is a brewing company that manufactures a broad range of beers sold in the Americas, including such brands as Brahma, Skol, and Stella Artois. In addition, Ambev produces energy drinks, teas, sodas, and other non-alcoholic beverages and food products. The Brazilian company is also the largest PepsiCo bottler outside the USA. It is the fourth-largest company in Brazil by market capitalization and is among the largest ones in the Southern Hemisphere.
Analysts rate Ambev as the best value beer stock, ahead of United Breweries Co. Inc. and Anheuser-Busch InBev SA/NV. The company is the beer stock with the lowest 12-month trailing price-to-earnings ratio — 15.1. Since profits are returned in the form of dividends or buybacks, a low price-to-earnings ratio means that investors pay less for each dollar of profit generated. At the end of October, Ambev stock soared by 7.5% after the company posted its financial results for the third quarter of 2021. Profit jumped by 57.4% year-over-year to 3.71 billion Brazilian reals, while net revenue was up by more than 18%. Such an impressive performance was due to volume gains in Brazil, Central America, and the Caribbean.
Centrais Elétricas Brasileiras S.A. - Eletrobrás (ELET3.SA)
Founded in 1962, Eletrobras is a leader in electric power generation and transmission in Brazil and is the largest company in the electric sector in Latin America. The company’s generating capacity is equivalent to about 1/3 of Brazil's total installed capacity and it has approximately half of the country’s total transmission lines in its basic network. It is noteworthy that over 90% of Eletrobras’s installed capacity comes from sources with low greenhouse gas emissions. The company, which has $5.6 billion in sales, $1.2 billion in profit, and almost $50 billion of market capitalization, is ranked by Forbes among the 10 largest companies in Brazil.
Headquartered in Rio de Janeiro, Eletrobras has the federal government as the majority shareholder. But in October, the Brazilian government approved the privatization of Eletrobras, as a result of which, the state’s 61% stake will be cut to 45%. The privatization process is expected to be completed in early 2022, helping the government to raise some $19 billion. Brazilian President Jair Bolsonaro has signed a decree to establish a state-run company called ENBpar that will control those assets that cannot be sold in the privatization, such as the Itaipu hydroelectric power plant and the nuclear plant in Angra dos Reis.
For the third quarter of 2021, Eletrobras posted a net income of 965 million Brazilian reals ($175.4 million), a 66% decline from the previous year. This decline is due to provisions relating to the ongoing litigation over a compulsory energy loan program. The program required industrial energy customers to provide money to pay for Brazil's electricity sector. Although the Brazilian government promised to repay the companies, this has been repeatedly delayed. At the same time, Eletrobras's third-quarter net operating revenue amounted to 9.96 billion Brazilian reals, a 50% increase from the same period last year. Credit Suisse's analysts view Eletrobras' operating figures as positive, but the litigation may negatively impact the company's future value.