Yes, I think Gafisa (GFA: current price: $2.37), is a good speculation at current prices. As always, I believe the way to make money in the Market is to bet on reversals. GFA seems like a good reversal candidate for the following reasons:
The known negatives:
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The macro environment, particularly, for emerging markets like Brazil, is very pessimistic right now because of all the known risks, e.g. China slowdown, European financial crisis etc. You must have courage to invest during these bouts of pessimism.
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Gafisa, in particular, has had a very rough year financially. The company reported a near R$1 billion accounting loss in 2011. Of course, if you have followed my picks for awhile, I believe that such massive losses are, generally (all things considered), a very bullish contrarian signal. Generally, I prefer, contrary to any common wisdom, to invest in money-losing companies, when I believe a turn towards better financial results is posssible.
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Gafisa is now trading at all-time lows.
And now for some positives, which could lead to a reversal:
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Brazil, from a longer-term macro-economic standpoint, is still a major growth story for various reasons, e.g. large oil discoveries which create jobs. So with time, assuming Gafisa survives, the company's fortunes should reverse, as Brazil's economic growth continues.
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Brazil's government is taking steps to try to stem a major economic decline, e.g. lowering rates. With time, the government's action will also put a floor under cratering financial prices.
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Gafisa, in particular, is taking steps to restructure the company and has a new management team in place. If the company's turnaround efforts prove successful the stock price could recover significantly as financial results beat, what are now, extremely low, expectations.
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Gafisa is an extremely well-known brand in Brazil, and could attract suitors are current prices. Notably, back in February there were rumors that Sam Zell was again interested in Gafisa. Competitor Cyrela Brazil Realty SA Empreendimentos & Participacoes also expressed interest in buying out Gafisa. Any M&A rumors could lead to a much higher stock price. In fact, I believe that the homebuilders in Brazil will consolidate further, because this is generally what occurs during periods of financial stress. The surviving companies can appreciate significantly after financial storm passes. Gafisa is undoubtedly an buyout candidate, and if the company is unsuccessful on its own in turning around its financial operations, the company will be sold. This, in theory, somewhat protects the, obviously nebulous, downside risk in the shares.
So given the huge amount of pessimism surrounding Gafisa (GFA) at this time (most of which is 100% justifiable), taking into account the all-time low in the stock price, and considering the several possible positive events that could, at least, in theory, benefit GFA, I think the risk/reward at this price is favorable. Gafisa could, of course, decline further, and it's possible the company's financial fortunes will deteriorate further. This is the risk.
Disclosure: I own shares of Gafisa (GFA)
