Postcards: Dumpster Diving in Santiago, Chile

The Presidential election in the Florida Republic would be highly unconventional, but it always ends with the same fireworks. Meanwhile, we need to look at a "generational" opportunity abroad.                                                                                                                                                                                                                                                                                                                                                                                                                 Forwarded this email? [Subscribe here]() for more [Postcards: Dumpster Diving in Santiago, Chile]( The Presidential election in the Florida Republic would be highly unconventional, but it always ends with the same fireworks. Meanwhile, we need to look at a "generational" opportunity abroad. [Garrett {NAME}]( Nov 6   [READ IN APP](   Market Update There was ample profit-taking in today’s trading session, and we saw energy, industrials, and tech stocks take a bit of a hit. The lack of volume for the day is a bit concerning, as buying pressure abated while some investors took gains. Be careful. we’re still barely above the 50-day moving average on the SPY. Wednesday’s been an ugly day, so watch how traders approach Tuesday’s trading session. Dear Fellow Expat: The first iteration of Postcards from the Florida Republic arrived in August 2020, a few months after the pandemic started. At the time, the idea was what would happen if Florida had to survive as its own nation due to economic and political fracturing caused by COVID. We summoned the ghost of [Sir Gregor McGregor]( Florida Republic name - and started writing about what our refuge nation might resemble. We didn’t take ourselves too seriously with our libertarian bend. As I’d noted, the election to the Florida Republic would come every five years. Here’s the original take from August 21, 2020: In the Florida Republic, the President would serve for five years and have a maximum of 20 years as President. Now, before you get all worried about dictators, let me explain how this works: Every five years, we have an election. The night before the election, we put the Republican in a boat off the coast of Captiva and the Democrat in a ship out in the middle of the Bermuda Triangle. This is important for social distancing. We stuff $1,000 in their pockets and fill the galley with food. Then, we hold a Zoom call that is broadcast to every residence in the Florida Republic. We’d ask the two candidates how they would lead if they could serve four terms as leaders. After whatever they offer as a nonsensical answer, we ignore them, cut the power to the boat, and let them drift to the Tampico and Ponta Delgada, respectively. Having jettisoned our two most politically ambitious people for good, we allow an English Bulldog to serve the remainder of the victor’s term. In the Republic of Florida, pursuing political power is highly discouraged. We will repeat this process repeatedly, let people who ignore the Great Civic Documents of the Florida Republic foolishly run for office, and then hold a party after we set them adrift. Three years later, however, I must ask a question. You’ll notice that we put money in their pockets so they could survive wherever they landed. Now, one must account for maybe they’d welcome it. With the U.S. dollar as strong as it is, emerging markets are now beaten down to their lowest levels in decades. A dollar goes a long way outside these borders… we might have only enriched and empowered adrift, power-hungry politicos. Might they try to come back and try to take over the Republic? We’d better build our war chest. Which is why it’s time to start looking abroad for unique investments. Let’s dumpster dive into what’s happening abroad. [Upgrade to paid]( Generational Opportunity? At the top of my news feed this morning, [an article on MarketWatch]( caught my attention. The subject is Richard Bernstein, CIO of Richard Bernstein Advisors (I wonder if he knew someone there to get the job…) Bernstein is looking across the markets and suggests that “unloved sectors of the global stock market” could overtake the big winners of this year’s market - Apple ([AAPL]( NVIDIA ([NVDA]( and Meta ([META]( - for the next ten years. He compares the current environment to the implosion of the Dot-Com Bubble and the Great Financial Crisis. He noted that the S&P 500 and tech stocks (NASDAQ) underperformed. Meanwhile, the “underdog” parts of the market - focusing on oil-and-gas names and emerging markets - topped expectations. “Much like after the deflation of the Technology Bubble, investors could be facing another ‘lost decade in equities,'” Bernstein wrote. So, what to make of these unloved sectors? Dumpster Diving in Santiago We already know that energy stocks are unloved. The sector is in the basement regarding its PE ratio compared to the rest of the S&P 500 sectors. Finviz But if you want to see a beaten-down area of the market… look at emerging market stocks compared to U.S. stocks. They have reached their lowest valuations compared to U.S. stocks since 1971. Bank of America, Syz Group The reasons for this aren’t shocking. The triple whammy of higher U.S. Treasury yields, a breakneck rally on the U.S. dollar, and weaker economic activity and debt are weighing on economies. China’s weakening prospects certainly affect foreign companies as well. The question is what opportunities start to exist… and whether it’s time to start being a contrarian for good reasons. Cut through the noise, and you’ll see that many countries have experienced strong years. This year, the iShares MSCI Brazil ETF ([EWZ]( is up 23.7%. The iShares MSCI India ETF ([INDA]( is up 5.4%. The iShares MSCI Mexico ETF ([EWW]( is up 18.2%. And the once poisonous Global X MSCI Greece ETF ([GREK]( is up 32.5%. U.S.-listed stocks from South Africa, Brazil, Mexico, Denmark, and Chile (to name a few) have beaten U.S. equities in the last month. Though that might be a small sample size, it welcomes the question of whether emerging markets have turned the corner. Opportunity Ahead? Emerging markets will need some additional help to keep the momentum going. Last year, Morgan Stanley promoted three possible trends to lift this beaten-up part of the world higher in 2023. They’re pretty much the same for 2024. - No. 1 - no surprise: China. More liquidity, more stimulus, more focus on growth. - No. 2 - a peak in the U.S. dollar. - No. 3 - shifts in global trade. The focus is on renewed supply chains and trade relationships between the U.S-India, Latin America and Southeast Asia; and China and everyone. So, where does the opportunity exist? In October, Goldman Sachs released a valuation table with projected returns for the year ahead. It noted that forward earnings ratios for many nations sat under 10. Now, I will note that forward P/E ratios are useless. There isn’t a strong correlation at all between these forecasts and outcomes. But we can take this insight and look at individual companies to help us harvest ideas. A few names have caught my attention when looking at the landscape of emerging markets and other stocks abroad. They are. Coca-Cola Femsa S.A.B. de C.V. ([KOF]( is the world's largest franchise bottler of Coca-Cola products. Its operations are across Latin America (headquarters in Mexico City), and it distributes and markets Coca-Cola products. In the U.S., Coca-Cola is pressured by consumer spending issues and worries about the weight-loss drug Ozempic. But KOF is intriguing because it appears to be a unique way to play Coca-Cola’s global brand, all with a better dividend, valuation, earnings surprise history, and growth outlook compared to other global players like Coca-Cola Europacific Partners PLC ([CCEP]( Coca-Cola Consolidated ([COKE]( and Coca-Cola ([KO](. Ecopetrol S.A. ([EC]( is the largest petroleum company in Colombia and focuses on the exploration, production, refining, and marketing of oil and gas products. The company is state-controlled, and the nation’s government is the majority shareholder. This is all about risk tolerance. I’m not touching Petrobras ([PBR]( in Brazil under the Lula regime with your money… but something is interesting about Ecopetrol - which is up 20% this year and offers U.S. energy investors exposure to the Western Hemisphere in a nation that’s on par with Panama and Mexico in terms of economic freedom (with a solid grade for investment freedom). The company has large stakes in multiple offshore projects with unique drilling prospects… It’s trading at a PE under 4x with a Graham number under 0.6x. And it has a rich history of dividend payouts. Sociedad Química y Minera de Chile ([SQM]( is a Chilean company specializing in mining and chemical products. Based in Santiago, it’s a global leader in lithium production, a critical component in batteries for electric vehicles and renewable energy storage. This is a high-margin company trading at relatively low metrics. The P/E ratio under 4 is something. The company producing the most critical component for EV batteries (20% market share) is now off 51% in the last 12 months. The recent supply pressures in lithium will ultimately abate and knock out some smaller players. This is an exciting contrarian play. Now, these aren’t recommendations. They’re some ideas to kickstart your research… It’s the emerging market world, so be smart and do your diligence. But these are more conservative names in a world of risk. Stay positive, Garrett {NAME} Invite your friends and earn rewards If you enjoy Postcards from the Florida Republic, share it with your friends and earn rewards when they subscribe. [Invite Friends](   [Like]( [Comment]( [Restack](   © 2023 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()