Charles Brandes (Trades, Portfolio) saw much opportunity in South America during the first quarter, as three of his five largest purchases are based in Brazil or Chile, according to GuruFocus Real Time Picks.
His firm’s U.S. Value Equity strategy returned 17.3% over the past three years, slightly outperforming the S&P 500’s 16.11% over the same period. During the first quarter, Brandes purchased 39 new holdings, with the majority of assets in the financial services sector at 26.5%.
Brandes is one of the few current active investors to have been influenced directly by Benjamin Graham. As a young broker trainee in 1968, Brandes had a chance meeting with Graham and soon dedicated his strategy to value investing. In 1974, Brandes founded Brandes Investment Partners based on the Graham and Dodd tenets.
Companhia Brasileira De Distribuicao (CBD, Financial)
Brandes’ largest purchase during the quarter was 785,169 shares for an average price of $32.78 per share. The new holding has a 0.32% portfolio weighting.
The company operates in the hypermarkets, supermarkets, specialty and department stores in Brazil, selling food, clothing, home appliances, and electronics. The stock dropped 33% in the past year. Its current price is $31.81 with a P/E ratio of 21.2 and P/S ratio of 0.4.
The company’s operating margin has been expanding over time, recording at 5.95% in 2014. This is higher than the retail industry median of 3.9%.
In 2014, net income was $481 million, up from $448 million the year before. Over the past five years, net income increased by 7.15%.
The current dividend yield is 1.3%, which is near the three-year high. The payout ratio is 20%, which indicates room for continued dividend growth in the future.
Brandes also purchased 861,000 shares of Enersis, which traded for an average price of $15.91 during the quarter. The new position accounts for 0.19% of the portfolio.
Enersis is a Chilean electricity utility company that operates in Chile, Argentina, Brazil, Colombia, and Peru. The stock rose 18% over the past year; the current price is $18.51 with a P/E ratio of 16.8, and P/S ratio of 1.44.
Over the past five years, the company’s EBIT per share declined almost 9% and reported at $2.88 in 2014.
The current dividend yield is 2.93%, which is close to the five-year low. The payout ratio is 47%.
The operating margin has largely remained steady over the past five years, increasing by only 0.22% over the past five years. In 2014, the margin was 24.39%.
He initiated a new position in Brink’s with 343,422 shares bought for an average price of $25.69 per share. Brandes sold out of a previous position in Q4 2013, but bought back in when the price dipped. The following graph shows his holding history.
Brink’s provides secure transportation, cash management services, and other security-related services to banks, retailers, and other businesses. The stock rose 27% over the past year, currently trading at $33.22 with a forward P/E ratio of 15.41, and P/S ratio of 0.5.
In 2014, Brink’s reported a loss for the first time in the past 10 years, with net income at $-84 million.
The current dividend yield is 1.22%, while the payout ratio is a very high 545% due to the negative earnings.
United Breweries Co (CCU, Financial)
Brandes also purchased 80,165 shares of United Breweries for an average price of $18.82 per share. United Breweries is a Chilean branded-beverage company that operates in Chile, Argentina, and Uruguay and also exports wine to more than 80 countries.
The stock price declined 5% over the last year and is currently priced at $22.36 per share. The current P/E ratio is 22.8 and the P/S ratio is 1.8.
GuruFocus rates the company’s business predictability as 3 out of 5 stars. The DCF calculator, which relies on the consistent earnings and revenue growth measured by business predictability, estimates a fair value of $13.48. This gives a -66% margin of safety.
In 2014, United Breweries reported net income of $170 million, a decline from the $197 million the year before.
The current dividend yield is 2%, while the payout ratio is 35%.
Credit Suisse Group (CS, Financial)
Brandes’ fifth-largest purchase was 23,045 shares of Credit Suisse, which traded for an average price of $23.84 during the quarter. The purchase accounts for 0.01% of the portfolio.
Credit Suisse operates in the banking, finance, asset management, and insurance segments. The stock declined 13% over the past year and now trades at $26.47. The current P/E ratio is 20.4, while the P/S ratio is 1.53.
Over the past five years, EBIT per share declined 18.37%, recording at $2.28 in 2014.
The dividend yield is 2.73%, while the current payout ratio is 58%.
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