Felipe Reis, an analyst for Banco Santander SA (ADR: STD), yesterday (Monday) slashed his target price for the U.S.-listed shares by more than half, stating that the worldwide outlook has become “more challenging.”

Reis, who previously had placed a year-end 2009 price target of $40 a share Vale’s U.S.-listed American Depository Receipts (ADRs), now says the shares of the Rio De Janeiro-based mining-and-metals heavyweight will trade at $18 at next year’s close. If you’re keeping score, that’s a reduction of 55% from his prior target. But it still represents a 59% gain from yesterday’s closing price of $11.32 a share.

”We are adjusting our estimates for Vale in order to reflect the more challenging scenario in the commodities market,” Reis wrote in a research missive, noting that the reduced target price takes into account “the significant global economic slowdown.”

In related news yesterday, Merrill Lynch & Co. Inc. (MER) cut its 2009 economic-growth forecast for Brazil to 2.9%, from a previous estimate of 3.1%, as the lagging effect of scarcer credit may be deeper than thought.

The Brazil exchange-traded fund, theiShares MSCI Brazil Index (NYSE: EWZ), was the focus of a recent Money Morning “Buy, Sell or Hold” column, and soared as much as 42% in six days after it was recommended as a “Buy.”

Source: Hot Stocks: Despite Lowered Target, Vale Still Poses Potential 59% Gain, Analyst Says

Editors Note: “Hot Stocks” is a new Money Morning feature that analyzes the investment outlook of global companies that are in the news. This is the sixth installment of this ongoing investment series.

Fitch raised Brazil’s foreign-currency debt rating to BBB-, the lowest investment-grade level, from BB+, matching a move made by S&P on April 30. The increase will give the South American country better access to capital markets because some institutional investors can only buy securities issued by countries with at least two investment-grade ratings. [...]

The yield on the government’s zero-coupon bonds due January 2010 fell 19 basis points, or 0.19 percentage point, today to 14.31 percent, according to Banco Bradesco SA. The extra yield investors demand to own Brazil’s dollar bonds rather than Treasuries shrank 16 basis points to 1.91 percentage points, the narrowest since Nov. 7, according to JPMorgan Chase & Co.’s EMBI Plus index.

The Fitch move “is potentially the door opening to some investors who now can buy Brazil in the fixed-income market,” said Geoffrey Pazzanese, who helps manage $44 billion in global stocks at Federated Investors Inc. in New York.

The risk of owning Brazilian bonds fell to the lowest since May 19, according to Bloomberg data. Five-year credit default swaps based on the country’s debt dropped 6 basis points to 0.895 percentage point. That means it costs $89,500 to protect $10 million of the country’s debt from default.

“Brazilian companies have become global leaders in key industries,” says Manraaj Singh in Profit Watch.

“Companhia Vale do Rio Doce is now the world’s biggest iron-ore producer. State-owned oil company, Petrobras, overtook Mircrosoft to become the world’s sixth-biggest company by market capitalisation last week. Petrobras is sitting on the Western Hemisphere’s largest oil discovery in three decades. Possibly even the third-biggest oil field in the world!

“These are names that are going to become much more familiar to us in the decades ahead.

“Brazil isn’t just an emerging oil giant… it’s also the biggest producer of the only truly commercially viable alternative to oil – sugar-based ethanol.”

As the world’s lowest cost ethanol producer, Brazil has a big advantage over other countries, says Mike Burnick in The Offshore A-Letter:

“Neither U.S. corn-based ethanol, nor wheat-based ethanol from Europe, can come close to matching the Brazilians on a production cost basis.

“The sugarcane plant, which flourishes in Brazil’s tropical climate, produces a ‘yield’ of 6,000 liters of ethanol per hectare of land. That’s about twice the yield of corn-based ethanol!

In fact, Brazilian ethanol is about 40% cheaper to make than in the US – and costs less than half the price of European ethanol.”

Brazil’s economy is booming. Brazilian companies are breaking-out onto the world stage. And its share market has been the best performer among the world’s twenty biggest this year.

The Bovespa Index is up by 13% since the beginning of 2008. Compare that to the FTSE – it’s fallen 5.6% since the start of the year!

The Brazilian stampede: Rich investors are piling in!

But here’s the most telling thing…

The majority of the action in Brazilian shares has NOT been happening in Sao Paulo… but in New York. In fact, the value of Brazilian shares traded in the U.S. has surpassed the daily average in Sao Paula since the beginning of this year.

The average daily trading in Brazilian American Depositary Receipts (ADRs) was $4.07 billion so far this month through May 26, topping the previous record in January of $3.99 billion. In the same period, trading on the Bovespa stock exchange in Sao Paulo averaged $3.59 billion a day.

Why is this significant?

It shows huge foreign interest in Brazilian shares – and with very good reason…

Brazilian companies have become global leaders in key industries.

Companhia Vale do Rio Doce is now the world’s biggest iron-ore producer. State-owned oil company, Petrobras, overtook Mircrosoft to become the world’s sixth-biggest company by market capitalisation last week. Petrobras is sitting on the Western Hemisphere’s largest oil discovery in three decades. Possibly even the third-biggest oil field in the world!

These are names that are going to become much more familiar to us in the decades ahead.

Brazil isn’t just an emerging oil giant… it’s also the biggest producer of the only truly commercially viable alternative to oil – sugar-based ethanol.

In fact, it produces so much of the stuff that the country has been dubbed the “Saudi Arabia of ethanol”.

But Brazil isn’t just a commodities play either…

It has a strong services-based economic sector as well. In fact Profit Hunter rode the country’s banking boom to healthy profit last August through our investment in Banco Itau. [Note: Past performance is no indication of future results]

A five hundred year growth story

Brazil has seen fantastic growth in recent years.

Measured in 1990 dollars, the entire Brazilian economy was worth about $400 million in 1500 A.D. That would have put the country at about number 325 on this year’s Times Rich List. By 1900, that had grown to $12.2 billion – respectable, but hardly impressive.

The real economic boom began in the 20th century.

By 2000, Brazil’s economy had reached $975.44 billion – a massive gain of 7895% since the beginning of the century. And Brazil is perfectly placed to keep up that pace into this century as well.

The IMF predicts the country’s economy will grow 4.75% this year, despite the global economic slowdown.

That’s three times faster than the UK’s expected to grow!

Here at Profit Hunter we’re in no doubt the Brazilian growth story still has a long way to run. And we’re looking for the next under-the-radar play on this amazing economy.

The best way to profit from Booming Brazil

The easiest way to ride this boom would be to get in through an ETF that tracks the Bovespa Index. But that isn’t the smartest way in.

You see, one result of all the trading in Brazilian shares in New York could be to divert investment away from the Brazilian market itself.

That’s been good for the companies, but it might act as a drag on the Bovespa Index going forward.

Instead, we’re looking at a ‘backdoor’ way to get into this story.

That’s not easy when you’ve got the whole world trying to pile into this market. But we’ll keep looking, and we’ll let you know very soon.

Manraaj Singh
Editor
Profit Hunter

Source: Brazil, The World’s Best Performing Stock Market