Brazil retail powerhouse Magazine Luiza is the equivalent of a Formula 1 race car. The company serves as a testament to why investors should never lose their cool over bad politics and a few bad earnings seasons.
The stock has been in fifth gear all year. Nothing comes close. Magazine Luiza is up — get this one — 462%, year-to-date. Over the last 12 months, it’s up over 1,100%. That’s in the local currency, but it doesn’t matter. The currency hasn’t gained that much against the dollar. As a portfolio investment, Magazine Luiza has left Hering (+23%), Renner (+47.8%) and Lojas Americanas (+25.4%) in the dust. Even holders of the MSCI Brazil (EWZ) exchange traded fund got whipped. The ETF is up 79% in dollar terms. It also beat Petrobras by a country mile. In the local currency, Petrobras is up 111% year to date. You got served.
“We have been working to prepare the company for this moment. Our (stock’s) performance this year is just a reflection of that,” says a modest Frederico Trajano, the company’s CEO and third-generation nephew of the founder Luiza Trajano Donato. Trajano has been the CEO since January.
“He cleaned house there,” says Paulo Figueiredo, director of trading operations at FN Capital in São Paulo. “After the impeachment of Dilma (Rousseff), the market returned to Magazine Luiza as the little darling of Brazilian retail. Analysts still think the stock, despite its rise, still has 20% more upside.”
All of these equity price gains have occurred when the country was mired in its worst political crisis probably since the military coup of the 1960s. This crisis is different than the IMF bail out years in the 90s. Magazine Luiza shares rose in a lousy economy and a political impeachment (and later an indictment of Dilma for cooking the books on fiscal accounts) during of a mega corruption scandal that turned families on each other the way a pro-Trump and a pro-Clinton household in the U.S. could no longer discuss politics.