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I have 26 consecutive profitable trades of 15% or better. How is this possible? Every day there are hundreds of stocks setting new highs, no matter what happens in the overall market. Many of these stocks are still at very reasonable valuations. Afraid of buying stocks at their highs? Think of it this way: a new high is really a future floor for companies with solid financial underpinnings. Quantitative momentum modeling makes it easy to identify stocks that can continue this upward momentum trend. Why does this happen? It's really very simple..ask me about what investors and cows have in common. I am $$$ MR. MARKET $$$. I AM HUGE!!! Bring me your finest meats and cheeses. You can join in on the fun. Register for free and you'll be able to post messages on this forum and also receive emails when $$$ MR. MARKET $$$ makes his own trades. ($$$MR. MARKET$$$ is a proprietary investor and does not provide individual financial advice. The stocks mentioned on this forum do not represent individual buy or sell recommendations and should not be viewed as such. Individual investors should consider speaking with a professional investment adviser before making any investment decisions.)
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  1. #1

    Default BBD ==> The Ides of March Winner

    There are lots of great countries on this planet. Of course, the US of A leads the way. Our great country has the smartest, strongest and funniest people on the planet. Well, maybe they only have one such person on the planet.

    For the most part, I am really proud to be an American, But when you think about it, the people in South America can say they are Americans also. However, I do not know if they really go around saying it that much. I know the people in Brazil say “Obligado” whenever they read about another great $$$MR. MARKET$$$ stock pick. In appreciation of their appreciation, I decided to go with another American pick, from Brazil.

    When I think of Brazil the first thing I always think of is the great Bobo Brazil.



    Bobo was really exciting in the ring. Bobo Brazil’s favorite wrestling move was the Cocoa Butt, a very sophisticated application which required extraordinary dexterity and precision. Basically he would smash his head against his opponents head, which would make his opponent fall down so that Bobo could pin him. What was amazing is that this move worked 100% of the time, yet Bobo would always wait until he was losing to apply it. I think it worked because Bobo Brazil’s skull was very hard. My brother told me once that Bobo’s cranium was harder than iron. What would happen is that Bobo would be losing a match and then his opponent would take Bobo’s head and ram it into the top turnbuckle several times. What was kind of perplexing is that Bobo, once his head was smashed into the turnbuckle, would turn towards his opponent, and then smile. It was as if he liked getting his head smashed into the turnbuckle. Then Bobo would smash his own head into the turnbuckle several times on purpose as if to say, “You are a very foolish man because my head is very strong,,,probably stronger than iron.” Then and only then, Bobo would deploy the Cocoa Butt against his sorry opponent on the way to victory.

    Of course there are other forms of entertainment in Brazil. What could possibly compare to the beaches of Ipanema? Just look at this wonderful scenery:



    Ok..I must repent. Amen! Speaking of religion, soccer in Brazil has surpassed the realm of sports and it is a religion in this great country. Take a look:



    That’s right homeboy. That’s the great Pele scoring a goal with a bicycle kick. He actually did this in the movie “Victory” with Sylvester Stallone. Why does that picture look like a bicycle anyway? How does a bicycle score a soccer goal? So what did Pele do with all of his money? Why he went to the best bank in Brazil.

    Today I bought Banco Bradesco (BBD) at 40.85. I will sell it in 4 to 6 weeks at 47.02. Here’s why I like BBD:

    BBD’s stock is up 173% in the last 12 months yet its PE is only around 14. I love love love cheap stocks that make money. Why? Because if they continue to make money, the stock price continues to go up and up and up. Will BBD keep making money? Do I want to drink beer on the sandy beaches of Ipanema?

    Banco Bradesco, short for Banco Brasileiro de Descontos, that is 'Brazilian Discount Bank', is one of the Big Four banks in Brazil,. Headquartered in Sao Paulo, it has more than 2,916 branches. Bradesco offers Internet banking, insurance, pension plans, annuities, credit card services (including football club affinity cards for soccer fans…remember Pele?) and free Internet access for customers. That’s right..open up a $10 savings account and get all the free porn you want! The bank also provides personal and commercial loans, as well as leasing services. Internationally, Bradesco has branches in New York, Grand Cayman and Nassau, and banking or financial subsidiaries or affiliates in Nassau, Luxembourg, Buenos Aires, Grand Cayman and Tokyo.
    Banco Bradesco was founded in 1943 as a commercial bank under the name “Banco Brasileiro de Descontos S.A.”. In 1948, the company entered a period of intense expansion, becoming Brazil’s largest commercial bank in the private sector at the end of the 1960s. They expanded activities nationwide during the 1970s, conquering Brazilian urban and rural markets. In 1988, they incorporated housing loan subsidiaries, their investment bank, and their finance company, making BBD a major money center bank.

    BBD is the largest Brazilian bank and largest private company in Brazil according to “The Forbes Global 2000” report, published by Forbes magazine in March 2005. They have the most extensive private-sector branch and service network in Brazil, allowing them to reach a diverse customer base. Their services and products encompass banking operations such as lending and deposit-taking, credit card issuance, consortiums, insurance, leasing, payment collection and processing, pension plans, asset management and brokerage services.

    Not only is the conglomerate BBD of significant size and scope, some of their subsidiaries rank as the largest companies in Brazil in their respective markets, according to the sources cited in parentheses below, including:

    - Bradesco Seguros S.A., the insurance subsidiary, in terms of insurance premiums, net worth and technical reserves (SUSEP);

    - Bradesco Vida e Previdência S.A., the pension and life insurance subsidiary, in terms of pension plan contributions, life and accident insurance premium, investment portfolios and technical reserves (SUSEP);

    - Banco Finasa S.A in terms of automobile financing loans (BACEN);

    They are also one of the leaders among private-sector financial institutions in third-party resource management and in underwriting debt securities.

    - one of the largest private-sector fund and portfolio managers in Brazil, with R$99.6 billion in total third-party assets under management, representing 14.8% of the total Brazilian market (ANBID);

    - one of the largest credit card issuers in Brazil, with 7.6 million credit cards (Visa and MasterCard) issued, and income of R|Conteudo|1.5 billion from our credit card business (Visa and MasterCard);

    - one of the largest debit card issuers in Brazil, with 38.8 million debit cards issued, and income of R$9.4 billion from our debit card business (Visa);

    - the leader in payment processing and collection in Brazil, with a market share of 28% (Settlement System of the Central Bank);

    I think that the CEO of BBD was seen on the beach of Ipanema slurping a cocktail and declaring in a very loud manner to attract attention to himself, “I am HUGE!”

    While BBD is a major money center commercial bank. It derives a great deal of pride and (ahem) revenue by being able to service the little guy. It’s no secret Brazil has a very large population of low income citizens. However these people need banking services too. BBD’ expansive banking network allows them to be close to these customers, on a personal basis. This enables the bankers to more accurately asses the creditworthiness of their customers. This segment still has great potential for development and provides us with higher margins than other segments, such as corporate credit operations and securities trading, where we face greater price competition.

    Consumers in Brazil are the same as consumers anywhere: Most need loans to buy cars, furniture, appliances and the like. The great news is that they are doing more and more of it. Thanks to the booming economy in Brazil, and South America in general. All of this has combined to generate serious jake for BBD.

    Of Brazil's 5,500 municipalities, 1,700 until recently had no banking services. That means a huge chunk of the population couldn't save money in interest-bearing accounts, couldn't make purchases on credit, and couldn't build up the kind of financial record that could help them qualify for a mortgage or a car loan.

    The biggest by far of the new people's banks is Banco Postal, which operates out of post offices around the country and boasts 2.8 million accounts. Banco Postal is run by Bradesco, The first branch opened in remote São Francisco de Paula in March, 2002. "Before we arrived, people in São Francisco de Paula had to go 10 kilometers to the nearest town with a bank to withdraw salaries or pensions," says André Rodrigues Cano, a Bradesco director. Brazilian authorities are pleased with their financial experiment. "Our objective, to include more people in the banking system, is being met fantastically," says Sérgio Darcy, a Central Bank director. BBD has 5,403 branches of Banco Postal completing our services network.


    With 180 million people, Brazil boasts the largest population in Latin America and the fifth-largest in the world. The country's economy is growing about 3.5% a year. Inflation has declined and jobs are opening up.

    A very good example of this retail engine was when Bradesco took over financing for Casas Bahia, the country's top home appliance retailer last year. Bradesco financed $20 million in March for Casas Bahia customers. By June that number rose to $321 million, and in September the total was $725 million. Lending on behalf of Casas Bahia comes risk-free, too, because Casas Bahia assumes losses if customers default. Clever clever clever right? Here’s the best part  Financing rates on behalf of a host of new retail clients range from 30% to 40% annually. Yup…40%. And they get mad at the payroll loan places in the USA!



    Ok..sounds like a pretty good business model. But every educated $$$MR. MARKET$$$ reader knows it all boils down to earnings earnings earnings and is there any juice left in this bottle?

    In 2005, BBD surpassed all of its business metric goals. Growing their credit portfolio by 30%, their net interest income by 25%, and fee income by 26%. In fact, fee income has grown for 15 consecutive quarters.

    Net income has grown each and every year since 2002 and is almost triple what it was in 2002 (from 2.0 R$ billion to 5.5 R$ billion. This net income has been sustainable, growing in every quarter throught 2005.

    Year over year auto loans have grown 47%, direct lending 107%, credit card 32%, and leasing 297%!! This isn’t some silly micropap. This is a goliath company growing like a newborn baby, Their earnings per share have exploded just in the last year, from R$ 3.22 in 2004 to R$5.63 in 2005.

    Tie this tremendous track record into what is happening in Brazil from a macroeconomic perspective. Over the next 2 years, GDP is expected to grow 4% per year. Interest rates will decrease slightly from around 15% to 13% and inflation should hold steady at around 4% per year. This should keep the FX rate pretty constant at around 2.25 R$/US$. All of this stability means that BBD should continue on its train track of money making banking operations.

    On February 22, BBD posted Net Income of R$ 5.514 billion in 2005 (equivalent to EPS of R$ 5.63), compared to the R$ 3.060 billion Net Income recorded in 2004 (equivalent to EPS of R$ 3.22), an 80.2% increase. Return on Average Stockholder's Equity (ROAE) stood at 32.1% in 2005 (22% in 2004). Net income in 4Q05 amounted to R$ 1.463 billion, which represents a 35.3% annualized ROAE (36.5% in 3Q05). Total Assets reached R$ 208.7 billion, with a R$ 23.8 billion or 12.8% increase in 2005 and R$ 6.8 billion or 3.4% increase in 4Q05. BBD has been growing its sales at twice the industry average.

    According to Bradesco's CEO, Mr. Marcio Artur Laurelli Cypriano, "2005 recorded the highest Net Income of the Bank's 62-year-old history. I would highlight the strong growth of our loan portfolio, the consolidation of our customer segmentation process, Grupo Bradesco de Seguros' (Insurance Activities) better performance and the strong cost control as the main drivers for this result.

    Here’s the fun part. The bank has flat out stated with confidence that they expect their business metrics to grow in 2006 as follows:

    Loan Portfolios: 25%
    Fee Income: 20%
    Net Interest Income: 8%
    Insurance Premiums 10%

    These are the same growth rates that contributed to the HUGE year over year earnings in 2005. BBD is basically TELLING US that their earnings WILL CONTINUE at this very high growth rate. It’s ridiculous that this stock, with this kind of growth rate, will continue to carry such a low PE valuation. Even if it does, when BBD banks its earnings in the upcoming quarters, it’s stock price HAS TO GO UP. There is no other way to do this math.

    Looking at it in US dollars per share: Even if BBD’s earnings are flat starting from their most recent quarter, that’s still $2.80 per share for the next 12 months. Give them a modest 20% growth, which they can easily attain with the healthy business metric goals they have been touting, and you end up with earnings of $3.36 per share. Now take a conservative PE of 15, and that implies a share price of $50, which is past my sell target, On top of that, I get some dividends along the way. (By the way, I just got a nice dividend check from GGB, after I sold my shares..I love when that happens…free beer money).

    Right now BBD is only 9% owned by institutions. Imagine how much this stock will move once the big boys start slurping it up. With a Return on Equity of 29.56% (for the last 5 years!), this stock is a no brainer, given it existing valuation. Anyway, I’m smashing my head against the turnbuckle on BBD. I can’t wait to put my profits into my own American bank.

    I am HUGE!!

    $$$MR. MARKET$$$

    http://www.mrmarketishuge.com

    So…how did you like this write-up? Let me know:

    mrmarket@mrmarketishuge.com
    Last edited by mrmarket; 07-06-2006 at 04:02 PM.
    =============================

    I am HUGE! Bring me your finest meats and cheeses.

    - $$$MR. MARKET$$$

  2. #2
    Risky Guest

    Thumbs up Bbd

    I KNEW you'd stay with Brazil. Great Pick as always!

  3. #3
    jeffbook Guest

    Default

    First CIB, now BBD. $$Mr. M$$ is not loco for these picks! I will buy this as the numbers and outlook make a quick 15% look highly likely, while continuing to watch JLG and TS

  4. #4
    Join Date
    Oct 2005
    Posts
    203

    Default Bbd

    Great pick $$MM$$. Unfortunately no options on this one for me. That's fine because the March five, JLG and TS options are already in the money!!!

  5. #5
    Join Date
    Sep 2003
    Posts
    4,776

    Talking BBD is HUGE!

    Somehow, I knew you'd go with the Brazilian Bank. I'm right there with you at 40.7. We're gonna make a brazillion dollars on this one! Great pick, $$MM. And a fantastic writeup, as always!
    Last edited by jiesen; 03-20-2006 at 11:51 AM. Reason: how DO you spell brazillion?

  6. #6
    Join Date
    Mar 2004
    Location
    Baltimore
    Posts
    265

    Thumbs up Cha-Ching

    Bradesco to Buy American Express Brazilian Unit for $490 Million

    They'll soon be raking in more Brazilian nuts.

    Oops ... forgot to say that I'm in at $40.60.
    Last edited by df21084; 03-21-2006 at 12:49 PM.
    Happy investing,
    Dave

    My opinion is worth no more than the price you paid for me to give it.

  7. #7
    Join Date
    Jul 2005
    Posts
    229

    Default bbd

    really great write up Ernie ... you are both clever and calculating, what a great combo! You are a true TITAN.

    hey, if you're not too tired of newcomers questions: can you tell me if/how you think the purchase of american express might affect bbd's earnings report?

    Cordially,
    g

  8. #8
    Join Date
    Jan 2006
    Posts
    29

    Thumbs up Samba

    Long Lives the soccer God Pele and his country...

    I'm in @ 40.80

  9. #9
    Join Date
    Jan 2005
    Location
    Bay of Rum
    Posts
    309

    Default Hold that Conga!!

    Great write-up Earnie, I am cert-n-ee in with you on this pick, you are HUGE!!!!!!!!!!!

    CHA-CHA-CHA, NYUK,NYUK!!!!!
    99 percent of Politicians give the rest a bad name.

  10. #10
    Join Date
    Apr 2004
    Posts
    7,176

    Default

    Yet to read mm's writeup for this one. I'm not liking the inital TA presenting, sorry to say. But good luck folks! I'll stalk this one for better entries down the road.


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