Around a 20% gain year-to-date has Peru near the top of Latin American countries as far as stock market performance is concerned. There is also another statistic that has the country near the top of the list - its P/E ratio, which is an impressive 39.1.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Even with the high valuation, the country is an investment opportunity that should be analyzed further. The country grew by 6.9% in 2011 and is expected to continue with strong growth of 5.5% in 2012. The reason for the slowdown is largely dependent on the issues in Europe and around the globe.

The best option for investors looking to take advantage of the current strength in Peru is via the iShares MSCI All Peru Capped Index ETF (ARCA:EPU). The ETF is a basket of 28 stocks based in Peru. The allocation is heavily concentrated in materials (about 53%) and the financials (almost 23%). The 12 P/E ratio on EPU is less than half of the valuation that is put on the country's index, based on the 28 stocks that it has in its portfolio. The dividend yield of roughly 2.2% and expense ratio of 0.59% are both attractive, considering the makeup of the ETF.

Top Holdings
(NYSE:BAP) is a financial services company based in Peru that also does business in Panama and Bolivia. The stock is up over 16% year-to-date and hit an all-time high in early April. With a PEG ratio near 1.22 and a dividend yield of 1.8%, the stock is considered a value play, fundamentally. Technically, the stock is trying to hold above its 50-day moving average at $127/share. The stock's performance will be closely tied to the growth of the country and its middle class.

Compania de Minas Buenaventura (NYSE:BVN) is a Peruvian gold mining company that also explores for other precious and industrial metals. With a PEG ratio of close to 1.6 and a dividend yield of 1.9%, the stock is valued well versus its gold mining peers. However, with the company so dependent on the price of gold and other metals, it will struggle to move higher until the underlying metals gain steam. I believe in gold as a long-term investment and BVN should benefit from the yellow metal, eventually breaking out above $2000/ounce.

Southern Copper (NYSE:SCCO) is another metal company in Peru that concentrates on mining copper. The stock has struggled recently, with the price of copper falling on worries out of China. The company is heavily dependent on the global growth story; in particular, the emerging markets. A PEG ratio of less than 1.0 makes SCCO a value play. However, it could become cheaper before it finds a bottom. The 2.4% dividend is an added bonus.

SEE: The Value Investor's Handbook

Metals and China
The fate of Peru and EPU is dependent on two main factors: demand for metals and Chinese growth. Nearly 50% of the country's exports in 2010 were copper and gold. If the price of both industrial and precious metals continues its long-term bull market, it would be a big plus for Peru. Directly related to the metals is demand from China. The country accounted for 15.6% of Peru's exports in 2010 and a slowdown in China could significantly lower growth in Peru. In short, Peru is a secondary play on metals and China.

The Bottom Line
As long as the global economy does not fall into another great slowdown or double-dip recession, the demand for metals from China and around the globe will remain strong. This strength will be what drives Peru's economy and stock market higher. If you believe in this theory, EPU and the related stocks should continue to be market leaders.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  2. Investing

    Have Commodities Bottomed?

    Commodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
  3. Mutual Funds & ETFs

    Top Three Transportation ETFs

    These three transportation funds attract the majority of sector volume.
  4. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  5. Investing Basics

    Tops Tips for Trading ETFs

    A look at two different trading strategies for ETFs - one for investors and the other for active traders.
  6. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  7. Investing

    Oil: Why Not to Put Faith in Forecasts

    West Texas Intermediate oil futures have recently made pronounced movements. What do they bode for the world market?
  8. Investing

    The Quinoa Quandary for Bolivian Farmers

    Growing global demand for quinoa has impacted Bolivian farmers' way of life. Should the American consumer be wary of buying this product?
  9. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  10. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  1. How can insurance companies find out about DUIs and DWIs?

    An insurance company can find out about driving under the influence (DUI) or driving while intoxicated (DWI) charges against ... Read Full Answer >>
  2. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!