Ultrapar Participacoes SA (ADR) (NYSE:UGP)

CAPS Rating: 5 out of 5

The Company is engaged in LPG distribution in Brazil and a producer of ethylene oxide and its principal derivatives in South America.


Player Avatar DAG1996MF (< 20) Submitted: 6/26/2013 3:17:36 PM : Outperform Start Price: $21.87 UGP Score: -2.54

As an investor who has been in and out of practically every Brazil ADR available over the years, I have concluded that Ultrapar Participações is the only Brazil ADR worth holding on a long-term basis. Much like the far better known PBR and VALE, UGP shares are widely held by institutional investors and funds throughout the world. However, unlike PBR & VALE, UGP is also widely held by Brazil's own retail investors as a "safe" growth and income play and has consistently performed very well despite the Brazil government's apparent attempts to destroy its own strongest companies. By the way, the conclusion about who invests in each of these companies, how and why is derived from a combination of direct conversations with a friend who is a fund manager in Brazil and my own independent due diligence.

Perhaps its because the company's products and services are so integral to the day-to-day lives of Brazilian citizens and the Brazilian government is focused on lifting Brazilian citizens out of extreme poverty and protecting them from pains such as inflation. In other words, the same nationalists issues that hurt PBR, VALE, etc. seem to be actually helping UGP. Simply put, Brazilian citizens are much more directly impacted by petro and propane distribution (Ultrapar services) than they are by iron ore (VALE) or crude oil recovery (PBR). As such, my observation has been that UGP is practically immune to all of the various misgivings that plague most every other Brazil ADR. Unlike VALE, Ultrapar is not dependent on China or the wild swings in sentiment regarding China. Unlike PBR (and Vale to a lesser degree), Ultrapar is not a victim of Brazil's political power brokering and corruption. And, unlike the Brazil utilities that had until recently been widely considered the "safe" Brazil plays (CIG & CPFL), Ultrapar is not the target of the drastic mid-game regulatory rule changes that have hammered the Brazil utilities.

Just take a look at the five-year chart for UGP and you will clearly see one of the reasons I consider UGP to be the only Brazil stock worth owning anymore. With that said, the stock has had quite a run so I probably wouldn't open a new position until after the next earnings release (I already have my full position). I also recommend a significant amount of due diligence to understand what the company does, where it operates (not just Brazil), etc. prior to buying since it is typically harder to understand and keep up with foreign companies.

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Member Avatar DAG1996MF (< 20) Submitted: 8/6/2013 2:22:08 PM
Recs: 0

JP Morgan Upgrades Ultrapar To Overweight ...

Member Avatar DAG1996MF (< 20) Submitted: 8/12/2013 6:16:18 PM
Recs: 0

After discussing Ultrapar (UGP) with a friend, I realized that I need to clarify my perspective. If I buy a stock that I intend to hold for the long term at $22, get a quick run up to $27 within a few months, then it drops back to $24 (while paying dividends the whole time), and that's all that happens during an index/country downtrend that stripped away literally 50-75% of value from almost every other stock; that's an excellent position in my book. I haven't lost a dime and actually made a good bit (unrealized), so not making enough quickly enough is a high-quality problem that I'm glad to shoulder. What makes that even more true is that, when the Bovespa does start to get its mojo back, UGP will be on the easy path from $24 to $30, rather than the long and winding road of trying to get back to $30 from $10, like almost every other Brazil ADR.

In the meantime, all that's happening is the good Brazil ADRs like UGP are getting punished along with the bad ones because they're all in the same ETFs that investors have been running from like the plague. Now that we're getting calls like "emerging markets are bottoming" and "it's time to start buying", it won't be long before the scenario described above starts to play out. And, personally, I'm happy to be in a position to rack up more gains, instead of trying to recoup massive losses.

The bottom line is I want to be in Brazil long term and UGP is one of only 2-3 strong, safe ADRs available. For those who believe Brazil will break off and slip into the sea, definitely stay away from UGP and all the other ADRs.

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