Here's How To Play Brazilian Infrastructure

The Brazilian government has unveiled a major infrastructure investment program to help stimulate its sluggish economy. Goldman Sachs analyst Marcio Prado believes the new initiatives create a buying opportunity for transportation investors.

“Given levered balance sheets, we believe listed operators could employ capital increases to fund new opportunities,” Prado explains. “Alternatively, new players could use new projects/privatization (airports) to establish a sizable position in the country.”

Related Link: Goldman Sachs Calls Out Brazilian Fiscal Imbalances

Prado believes the Brazilian Development Bank will continue to be a major funding source even as the company continues to consolidate its balance sheet.

Goldman believes lower interest rates are a secular theme in Brazil, but the current real interest rate of around 5 percent will continue to be a value driver when it comes to concession stocks.

Goldman sees Brazil’s largest railroad operator, Rumo, as the best investment opportunity in the transportation space. The firm has raised its price target for the stock from R$4.80 to R$5.50 and maintains a Buy rating.

In addition, Goldman sees CCR as the best-positioned transportation company to grow via new projects, although Goldman has only a Neutral rating on the stock.

So far this year the iShares MSCI Brazil Index (ETF) EWZ is up 30.7 percent.

Disclosure: the author holds no position in the stocks mentioned.