There are two schools of thought that investors should remeber when it comes to Latin America. First, Brazil is far from the only game in town. An addendum to that statement is Petrobras is not the only major oil player either. Second, Colombia has changed and changed for the better. Once known more for its Marxist rebels and for being a primary exporter of a certain powdery white illicit substance, Colombia has worked diligently to reshape its image and transform itself into a legitimate destination for global capital.
This is a rhetorical question, but indulge me: What is the best-performing emerging markets ETF in 2010? Why that would be the Global X/InterBolsa FTSE Colombia ETF (GXG). In a year where investors have been steadily pouring fresh cash into emerging markets ETFs, GXG takes the cake with a 50% return year-to-date.
That performance has been buoyed by Ecopetrol, Colombia's state-run oil company, which accounts for more than 20% of GXG's weight. Ecopetrol is one of just two Colombian stocks listed on a U.S. exchange, which may be one reason the stock does not get a lot of publicity. A lack of headlines for Ecopetrol certainly cannot be blamed on the stock's performance. The shares are up almost 70% year-to-date, a stunning run under any scenario, but even more impressive is the comparison against comparable oil companies.
Simply put, Ecopetrol has blown away Exxon Mobil (XOM) and Royal Dutch Shell (RDS-A) and embarrassed other state-owned oil producers such as PetroChina (PTR) and Petrobras. The chasm is so wide between Ecopetrol and Petrobras in terms of shareholder returns that the only logical reasons why Petrobras (PBR) grabs more headlines is because it is bigger and Brazilian.
Ecopetrol is not some speculative small-cap either. It is a legitimate large-cap (almost mega-cap) stock with a market value of over $82 billion. Carry it a couple of decimal places, and Ecopetrol is bigger than ConocoPhillips. Ecopetrol is also nearly $20 billion bigger than Occidental Petroleum. Ecopetrol's yield of 3.1% is fair by industry standards. It is smaller than what Conoco (COP) offers, but superior to what you would get with Exxon and Occidental (OXY). And with regards to yield, Ecopetrol once again embarrasses its Brazilian counterpart.
One drawback with Ecopetrol would be the Colombian government's 89% stake in the company, a total that is much greater than Brazil's controlling interest in Petrobras, but that may the worst thing that can be said about Ecopetrol at this point. The company has an ambitious exploration budget of its own that calls for $80 billion in capital expenditures starting next year through 2020.
The company, some analysts believe, got BP's (BP) Colombian assets on the cheap when it partnered with a Canadian firm to pay $1.9 billion to contribute to the British oil giant's fire sale. Ecopetrol is not just a Colombia play either. The company has footprints in Brazil, Peru and probably unknown to many U.S. investors, a presence in the U.S. portion of the Gulf of Mexico.
Those are the fundamentals. The chart shows Ecopetrol (EC) has moved up in near straight-line fashion since July before bumping into resistance just above $42. If the shares pullback to support at $38 and if that level holds, that very well could be the time to buy on a dip before the stock moves to the 50s.