Best Stocks to Buy in South America

When investors think of Latin American stocks to buy, they usually first think of Brazil.

Brazil is the largest country in South America and is part of the BRICs group of emerging nations that were once thought to be the world's premier growth opportunities.

While many think that Brazil will eventually get its act together and resume a path of economic growth, right now financial conditions there are far from robust. The economy is very weak, and the nation is experiencing inflation that is leading to political turmoil.

The country's close trading ties to Venezuela and Argentina are becoming problematic as oppressive governments in those nations have choked off their own economies.

The outcome of the 2014 election could be a turning point for Brazil, but Brazil is not the region's growth story right now.

Investors' focus in Latin America should instead center on the Pacific Alliance created back in May between Chile, Mexico, Colombia, and Peru. The four nations removed tariffs on 90% of trade between themselves and established plans to remove the balance over the next decade.

Chile and Peru have combined their stock exchanges to create a single regional exchange, and Mexico is expected to integrate its stock exchange in 2014. Panama and Costa Rica have expressed some interest in joining the alliance in the future.

The four founding nations of the Pacific Alliance have faster gross domestic product (GDP) growth, export more goods, and are attracting more foreign investment than Brazil right now, so they should be of more interest to emerging market investors.

Looking at the countries in the partnership, one stands out as the best bet for emerging market growth investors right now.

Why Chile Holds South America's Best Stocks to Buy Now

Chile is one of the strongest economies in South America.

The country has the highest GDP per capita on the continent and is the most competitive nation in the region, with several industries forming the backbone of its economy.

Chile is the world's largest copper producer and also provides more than one-third of the world's supply of salmon. And Chile's forestry sector has flourished as well and is one of the region's largest exporters.

Financial services and banking laws have relaxed over the past decade, and financial services are growing. The national pension system has created a valuable source of investment capital to spur growth in Chile as well.

Chile's economy is growing at a much faster rate than most of the rest of the world. The Chilean central bank said last week that GDP grew by 5.5% year over year, driven by a large increase in domestic demand. Activity picked up across all sectors, including such important industries as retail construction and services. Mining also continues to be a strong contributor to the economy in spite of weakness in the metals markets, including copper.

Emerging market investors might want to consider compiling a selection of Chilean stocks to take advantage of what should be an even stronger economy, as the Pacific Alliance continues to open markets and expand trade. The recent weakness across the board in emerging market stocks is creating a more favorable entry point, especially for large cap stocks based in Chile.

Here are three of the best stocks to buy now to play this growth story...

Three Stocks to Buy to Tap South American Growth

Chile has several quality stocks to buy that tap into the sustained growth driven by sound economic policies and the country's Pacific Alliance membership.

Three places to look to benefit from the region's continued economic health are the leading electric utility, bank, and retail chain in Chile:

Enersis S.A. (NYSE ADR: ENI) is the largest stock by market capitalization in the country that is traded on an exchange in the United States. Enersis is Latin America's largest power holding company. It provides power to almost 12 million customers.

In addition to providing electricity in Chile, the company also has operations in Brazil, Colombia, Peru, and Argentina. Economic growth drives electricity demand, which should be good for revenue and profit growth for this company.

The stock currently trades around $15 a share, at 11 times earnings, and yields 2.9%.

Banco de Chile (NYSE ADR: BCH) is Chile's largest bank by market capitalization. The bank was founded in 1893 and currently has 434 branches and almost 2,000 ATMs in the country.

In the past five years, the shares have nearly doubled. Earnings growth has averaged nearly 18% over the past decade.

The bank trades at just 11 times earnings and is currently yielding 3.9%.

Cencosud S.A. (NYSE ADR: CNCO) is the largest retailer in Chile. The company operates 1,082 stores - supermarkets, home improvement stores, and department stores that sell a range of merchandise, such as apparel, home furnishings, electronics, and sporting goods. The company also owns and manages 11 shopping centers in Chile, 15 in Argentina, and 3 in Peru.

Cencosud owns pharmacies, gas stations, a travel agency, and entertainment centers. The company seems to dominate the Chilean retail markets, having opened 172 stores in the first quarter of this year, and it's still growing.

Our favorite foreign stocks to buy now for huge upside potential aren't just in Chile - in fact, we have a way to get 46% gains if you follow this Australia play...