2022 was a tough year for most global equities markets. One notable exception was Latin America. The iShares Latin America 40 ETF (NYSEARCA:ILF) rose nearly 10% for the year compared with an 18% decline in the SPDR S&P 500 ETF (NYSEARCA:SPY). With some strategists forecasting 2023 will be another strong year for the region, today we’ll consider three of the best South American stocks for investors to buy.
Christopher Baxter, an investment strategist at Morgan Stanley Wealth Management, recently released a report on the investment opportunities in Latin America. According to Baxter, there are several factors that will work in the region’s favor in the year ahead, including moderating inflation and attractive stock valuations.
You don’t have to twist my arm to get me excited about the best South American stocks. As far back as 2012, I’ve been a big believer in the region. There have been many ups and downs since then, but also plenty of opportunities in the grand scheme of things.
Here are three of the best South American stocks for investors to buy in 2023.
| RADLY | Raia Drogasil | $4.97 |
| ARCO | Arcos Dorados | $8.80 |
| GPRK | GeoPark | $16.03 |
Raia Drogasil (RADLY)
First up on the list of best South American stocks is Raia Drogasil (OTCMKTS:RADLY), the largest drugstore chain in Brazil with more than 2,500 stores.
It was created in November 2011 through the merger of Droga Raia SA and Drogasil SA. Both of the companies had long histories in Brazil’s pharmaceutical retail sector. Droga Raia dates back to 1905, while Drogasil got its start in 1935. Today, the combined company has a market cap of $8.3 billion, trailing 12-month revenue of nearly $5.5 billion and trailing 12-month operating income of $336.6 million.
The company is growing revenue and earnings at a healthy clip. In the most recently reported quarter, revenue rose 22% year over year, while net income was up 39%.
Approximately 28% of the company’s shares are controlled by the founding Droga Raia and Drogasil families. I’ve always favored companies with significant controlling positions. It generally is more patient capital.
So far this year, RADLY is up 12.7% compared with 5.8% for the SPY.
Arcos Dorados (ARCO)
From time to time over the years, I’ve recommended Arcos Dorados (NYSE:ARCO). It’s hard not to like the world’s largest independent McDonald’s (NYSE:MCD) franchisee. It operates more than 2,250 restaurants in 20 Latin American and Caribbean countries.
Woods Staton founded the company in 2007 when he and a group of investors acquired McDonald’s operations in Latin America. Before buying the operations, Staton opened the first McDonald’s in Argentina in 1986 and later became the head of McDonald’s South Latin American division. He served as Arcos Dorados CEO until October 2015, when he became executive chairman, a position he still holds today.
Arcos Dorados has been delivering strong results recently. For Q3, its systemwide comparable sales jumped 34.2% year over year, which the company noted was double the average inflation rate for the quarter. As a result, revenue rose 26.7% to $916.3 million with consolidated adjusted EBITDA of $103 million, 15% higher than a year earlier. Excluding currency, adjusted EBITDA increased 27% year over year.
As CEO Marcelo Rabach said in his accompanying message to shareholders, “The McDonald’s Brand is as strong as it has ever been in Latin America and the Caribbean.”
While it’s operating at a high-efficiency level, Arcos management believes it can do even better in 2023 and beyond. Under $10 a share, ARCO is a strong buy.
GeoPark (GPRK)
GeoPark (NYSE:GPRK) is the smallest of today’s three best South American stocks, with a market cap of $939 million. It is a leading independent Latin American oil and gas exploration company based in Colombia with operations in Colombia, Brazil, Ecuador, Argentina and Chile.
Between 2009 and 2021, it grew its production by a 16% compound annual rate. However, between 2022 and 2026, it plans to increase production at a slower CAGR of 10%. That translates to 55,000 to 60,000 barrels of oil equivalent per day (boepd), up from 35,465 in 2021.
In 2022, GeoPark produced 38,433 boepd. It plans to up that 5.4% to 40,500 in 2023 at the midpoint of its guidance.
The company believes that, at current prices, it will generate adjusted EBITDA of $510 million to $580 million in 2023, with free cash flow of $120 million to $140 million. It plans to return about 45% of its free cash flow after taxes to shareholders.
Over the past five years, GPRK stock is up 58% — 18.5 percentage points higher than the S&P 500.
American energy stocks aren’t the only way to play higher oil and gas prices. I urge you to take a closer look at GPRK.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.