Imagine it: it’s 1974. Inflation is running wild in the economy. Gerald Ford, one of the truly “good guy” politicians, is the lamest of lame duck Presidents. By year’s end, he will have been bested and replaced by the likable and sincere governor of Georgia, Jimmy Carter.

The aftermaths of Watergate and Vietnam linger in the national psyche. The stock market has collapsed by more than 40%. Thanks to dismal results in the textile divisions, Warren Buffett has had one of his worst years to date.

But if you fast-forward to today, investors who purchased $10,000 of Berkshire Hathaway back then have seen it grow to about $150 million today. And that is the opportunity that you have now in Brazil.

Once again, I am breaking all the rules of financial publishing: I am never supposed to talk about foreign stocks because readers are not interested. I am especially never supposed to talk about a country like Brazil.

But I’m going to, because the opportunity is just too great. Let me show you…

After all, Brazil is what the kids would call a “hot mess”: politics are contentious. The economy is merely grinding along. One of the worst criminal gangs in Rio de Janeiro is made up of active and retired cops. Interest rates are 12.75%.

Brazil should be booming. It has lots of oil. It is one of the largest producers of a long list of agricultural commodities like corn, lemons, pineapples, bananas, watermelon, and papaya. It is a leading iron ore, copper, tin, and nickel producer. Commodity inflation should be driving an economic boom for Brazil.

But this has not been the case so far, largely because Brazil has also been a leading producer of inefficiency, corruption, and bad decisions.

However, the country has a new government and a young population. So, while investing with one of the country’s best business people might not have the same results as investing with Warren Buffett in the 1970s, there is a decent chance that it will.

Rubens Ometto had to sue his family to get control of Cosan (CSAN), the business his grandfather built. Over the last decade, Ometto has managed to increase cashflows sixfold, and reduce debt by 47%.

Cosan is a collection of businesses that take advantage of the resources available in Brazil, and it will benefit from tailwinds developing in the global economy. At the time that Ometto took over the company, its principal business, Raízen, consisted of the sugar and ethanol businesses.

Cosan still owns Raízen, now the fourth-largest company by revenue in Brazil. It is a leading sugarcane cane ethanol manufacturer and the country’s largest sugar exporter, and it also uses sugarcane byproducts to produce 1.3 GW of electricity. Plus, Raízen owns more than 1,300 convenience stores and 7,300 gas stations throughout Brazil.

Cosan also owns Compass, a natural gas infrastructure and distribution company. Cosan’s Moove is one of the largest suppliers of lubricants for the automotive markets. And, Cosan’s Rumo, a railway and logistics company, owns 14,000 kilometers of railway through the heart of Brazil’s agricultural center, not to mention 1,500 locomotives and 15 terminals.

Cosan also owns the largest portfolio of agricultural land in Brazil, with properties that produce primarily sugarcane and grains, as well as about 5% of Vale, one of the largest producers of iron ore, copper, and nickel.

The ethanol and renewable biomass business and the nickel and copper produced by Vale will see a massive boost from the current green energy movement. And the food business will see demand from the continued global creation of an expanding middle class.

If this were a U.S. company, it would trade for 20 times free cash flows. Because it is Brazilian, it trades for a mere five times free cash flows.

Cosan’s current yield is 2.5%, and it could easily develop into one of the strongest dividend growth stories of the 21st century.

— Tim Melvin

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Source: Investors Alley