Clayton Gardner sends: There is no question that Latin America has sported brilliant economies with surging markets in the last several years. The typical emerging market mutual fund can be found generating close to or as much annual profit as many major hedge funds investing in South America. The most notable market of Latin America is undoubtedly Brazil, as much of my diversified large-cap winners are indeed based there. The three major stock plays on the growth of the Brazilian market, in my opinion, are Petroleo Brasileiro (PBR), America Movil (AMX), and CVRD (RIO). These stocks profit from three of the fastest growing industries in Latin America and throughout most of the world: oil, telecommunications, and metals.

My primary methods of evaluation of most large-cap stocks are their financials. I skim the P/E multiple, EPS, Price/Book Value, PEG ratio, Debt/Equity ratio, and free cash flow. When I first came across PBR near the $105 level, the stock’s P/E, earnings, and cash flow looked unbelievably attractive. In fact, the earnings were nearly 2x the multiple (similar to Goldman Sachs, which also remains incredibly cheap)! With a behemoth oil company ruling Brazil and surrounding Latin-American grounds, it was hard not to load up on shares on this beast. Since purchase, with the strengthening of Brazil’s and other countries’ currency, along with rising crude oil over $70 a barrel, PBR soared close to the $130 level before a 2:1 split. With simple knowledge of looking for a P/E under 12, EPS at least 1/3 of that multiple, Price/Book under 4, and a large free cash flow, I found a complete success story that still remains a top holding in my portfolio.

America Movil (AMX) has gone relatively unwatched by some of Wall Street’s most successful emerging market ETF’s. I found the stock cheap and attractive while searching among the holdings of a successful ETF called Dreihaus Emerging Markets Growth Fund (PBR was also a holding here, too). I spotted AMX near the $50 level with a seemingly unattractive multiple of 25. Although AMX had a practically non-existent dividend and fairly stagnant cash flow, I decided to buy AMX in anticipation of the continued momentum of insider trading by the current richest man in the world, Carlos “Slim” Helu. Although I was criticized for investing in another such behemoth that endured accusations of price gouging, I am a happy man today with AMX having returned more than 30% so far. Again, it was the discovery of such a behemoth in an emerging market, with surging U.S. earnings growth and insider trading that fueled outside investor interest. I still hold shares of AMX.

Finally, CVRD has proved to be a slow growth but high return stock. When I first spotted CVRD near the $40 level, the P/E and earnings were very unattractive. I saw the slim profit margins and could not imagine how investors would choose CVRD over larger, more stable metal plays like Rio Tinto or Cleveland-Cliffs. Despite my negative analysis, I noticed a low PEG ratio of around 1, and subsequently I jumped aboard the Latin-America momentum train and patiently rode the increasing Brazilian currency to a generous profit in RIO. RIO currently sells around $48 per share, with a finally readjusted multiple of 14 and great growth estimates. In my analysis of global markets, I have seen increasing profits generated from several industries, including machinery, infrastructure, metals, agricultural minerals, aerospace, oil services, and energy. As RIO falls into the category of one of Brazil’s most stable growth industries (metals), I still hold call options in RIO at a 45.00 strike price. I recommend riding this South-American momentum until major foreign currencies start to fall.

Full Disclosure: I have holdings in PBR, AMX, and RIO.