The 3 best South American stocks to buy in 2023

2022 has been a tough year for most global stock markets. A notable exception was Latin America. The iShares Latin America ETF 40 (NYSEARC:ILF) increased by nearly 10% over the year, compared to a decline of 18% SPDR S&P 500 ETF (NYSEARC:TO SPY). With some strategists forecasting that 2023 will be another strong year for the region, today we’ll look at three of the best South American stocks for investors to buy.

Christopher Baxter, Investment Strategist at Morgan Stanley Wealth Management, recently published a report on investment opportunities in Latin America. According to Baxter, there is several factors that will work in favor of the region over the coming year, including moderating inflation and attractive stock market valuations.

You don’t have to twist my arm to get me excited about the best South American stocks. As early as 2012, I was a big supporter of the region. There have been a lot of ups and downs since then, but also a lot of opportunity in the grand scheme of things.

Here are three of the best South American stocks investors can buy in 2023.

Raia Drogasil (RADLY)

First on the list of top South American stocks is Raia Drogasil (OTCMKTS:RADLY), them largest pharmacy chain in Brazil with more than 2,500 stores.

It was created in November 2011 by the merger of Droga Raia SA and Drogasil SA. Both companies had a long history in the pharmaceutical retail business in Brazil. Droga Raia dates back to 1905, while Drogasil got its start in 1935. Today, the combined company has a market capitalization of $8.3 billion, behind Turnover over 12 months of nearly $5.5 billion and 12-month operating profit of $336.6 million.

The company is growing its revenue and profits at a healthy rate. In the most recently reported quarter, revenue grew 22% year-over-year, while net profit increased 39%.

Around 28% of company shares are controlled by the founding families Droga Raia and Drogasil. I have always favored companies with significant control positions. It is generally more patient capital.

So far this year, RADLY is up 12.7% versus SPY’s 5.8%.

Arcos Dorados (ARCO)

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Occasionally over the years I have recommended Arcos Dorados (NYSE:ARCO). It’s hard not to love the world’s biggest indie McDonald’s (NYSE:MCD) franchisee. It operates more than 2,250 restaurants in 20 countries in Latin America and the Caribbean.

Woods Staton founded the company in 2007 when he and a group of investors acquired McDonald’s operations in Latin America. Prior to purchasing the operations, Staton opened the first McDonald’s in Argentina in 1986 and later became the head of McDonald’s Latin America South division. He was CEO of Arcos Dorados until October 2015, when he became executive chairman, a position he still holds today.

Arcos Dorados has recently recorded strong results. For the third quarter, its system-wide comparable sales jumped 34.2% year-over-year, which the company said was double the average inflation rate for the quarter. As a result, revenues increased by 26.7% to reach $916.3 million with a consolidated adjusted EBITDA of $103 million, 15% more than a year earlier. Excluding currency, adjusted EBITDA increased 27% year-on-year.

As CEO Marcelo Rabach said in his accompanying message to shareholders, “The McDonald’s brand is stronger than it has ever been in Latin America and the Caribbean.”

Although it is operating at a high level of performance, Arcos management believes it can do even better in 2023 and beyond. Under $10 per share, ARCO is a solid buy.

GeoPark (GPRK)

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GeoPark (NYSE:GPRK) is the smallest of the current top three South American stocks, with a market capitalization of $939 million. It is a leading independent oil and gas exploration company in Latin America based in Colombia with operations in Colombia, Brazil, Ecuador, Argentina and Chile.

Between 2009 and 2021, it has increased production at a compound annual rate of 16%. However, between 2022 and 2026, it plans to increase production at a slower CAGR of 10%. This translates to 55,000 to 60,000 barrels of oil equivalent per day (boepd), compared to 35,465 in 2021.

In 2022, GeoPark produced 38,433 boepd. It plans to increase that 5.4% to 40,500 in 2023 midway through its forecast.

The company estimates that at current prices, it will generate adjusted EBITDA of $510-580 million in 2023, with free cash flow of $120-140 million. It expects to return approximately 45% of its after-tax free cash flow to shareholders.

Over the past five years, GPRK’s stock has risen 58% – 18.5 percentage points more than the S&P500.

US energy stocks aren’t the only way to bet on rising oil and gas prices. I invite you to take a closer look at GPRK.

As of the date of publication, Will Ashworth had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.