Published:
October 8, 2007
One company that has caught my eye
recently is Gafisa (NYSE: GFA,
$33.30), a Brazilian company
that's trying to bring North
American-style housing developments
to Brazil. The nation's population is
more than +70% larger than that of
Mexico, but its housing market is
about half of that in Mexico. But as
prosperity works its way through the
Brazilian economy, more and more
people will be able to afford homes,
and Gafisa is bringing the
efficiency of modern building
methods to the building process.
Whatever you may think about urban
sprawl and real-estate developers in
general, you can't say that they
aren't profitable. Revenues at
Gafisa for 2006 were up +62% from
2005, and earnings per share more
than doubled from $0.20 to $0.54 per
share. Combine this with an
after-tax profit margin of 12.1%, and
the numbers look good, making it
clear why institutional sponsorship
almost doubled between the
first and second quarter of this
year.
Another trend working in
Gafisa's favor is geographical
growth. Two-thirds of 2006 revenues
came from building in the Sao Paulo
region, with another 27% from the
area around Rio de Janeiro. Now
Gafisa is branching out, forming
joint ventures with regional
builders in the states of Maranhao,
Paraiba, Rio Grande do Norte, Ceara,
and Pemambuco.
And finally, GFA has just been
made a part of the Bovespa Index,
the Brazilian equivalent of the S&P
500.
Technically, GFA has an
interesting chart. The stock came
public last March at $24 per share
and ran quickly to $36 at the
beginning of June before correcting
for a month. It returned to the $36
level in early July, and then took a
two-month tumble, plunging as low as
$21 during the infamous subprime
mortgage panic. But beginning on
September 11th, the stock began a
determined run that has brought it
back toward old highs on good
volume. Eventually, I look for a
breakout into new territory above $36.
GFA has exactly the kind of
triple threat I like to see in a
stock: a good story, strong
fundamentals, and a chart that
reflects some enthusiasm from
investors. I think it's worth a
look.
Paul Goodwin
Editor
Cabot China & Emerging Markets Report
About Paul Goodwin
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