Is Bovespa a Bargain?

Bovespa is reaching now 3 years low and is at the same level as it was in middle of 2007 (5 years ago).

So it seems that Bovespa is trading at very attractive prices. Is that true?

What the big guys are buying?

I'm having a free time these days so I finally had a time to build an excel function to automate reading CVM data.

The tables below shows what the best funds are buying (July 2011). This may be appropriate to get some insight to where looking for.

Investors Fees

Have you ever thought about how much investors have to pay to buy stocks?
I did a rough calculation after reading BVMF3 earnings release:

• Current dividends paid: with Fundamentus data, I multiplied current yield by market value to get all the dividends paid in 1 year.
• Costs with BM&f Bovespa was easily got in its earnings release.
• Brokerage commissions: here I had to make an assumption that one trade would cost, on average, BRL 15.00. That's because I can't get the total brokerage revenue, so I have to estimate it. Considering 83.9 millions of trades in spot market occurred in 2010, revenue would be 1.25 billions. I think that this amount is underestimated, because I'm not taking into account options, derivatives, term market, and so on.

What we should buy

I've sold some small companies I had in my portfolio and all FIIs, just to focus on large companies. But it's very difficult to escape, at current moment, from banks and steel (BBAS, BBDC, ITUB, CSNA, GOAU and USIM).
So I made a search on largest companies today to see what could be bought.
I put the results in a Google Spreadsheet. You can have access here.
See what you think could be a valuable buy today.

Bovespa Laggers

Since Bovespa starts to show an interesting decline, I searched companies that have dropped more than 20%. After that, I've made some adjustments, like:

• P/E less than 15;
• Yield more than 3%;
• Excluded some companies that don't worth a penny.

The results are not yet so encouraging.

Wonderful Companies

I wonder when I'll be able to buy these wonderful companies at a fair price.
Today it's a bad investment at current valuation (maybe it doesn't apply to BBDC).

Ibovespa P/E

I'm sick and tired of hearing those dumbs and biased analysts (or should I say experts?) claiming that Ibovespa is cheap, because its P/E currently is 9, or because its P/E is most attractive in relation to all emergents, blah, blah, blah...
So I decided to calculate myself the Ibovespa P/E. Here is my methodology:

• I've selected 231 companies to calculate the median P/E for the last 12 and 20 quarters. I prefer the median estimator, because it often better expresses the common-run, since it is not, as is the mean, affected by an excessively high or low figure, like a extraordinary result in determined quarter.
• For that group, I've excluded 31 companies that had median losses either for the last 3 years or 5 years, remaining 200 companies.
• For 5 years calculation, only 140 companies had enough quarters.
• I also managed to compute the current yield.
• All that median figures was then ranked by market value and liquidity. I don't give a shit for liquidity, but as it is too loved by most market "investors", it's interesting to calculate it anyway.
• All the data are of April 5, when Ibovespa was closer to 70k points.

Frauds are not restricted to the invested companies

As published today in Valor, CVM fined brokers for irregularities (google translated):

In the case of Umuarama, punishment refers to four groups for the purchase and salethe same day (day-trade ") made ​​in 2004 by a company, UVTC SA, an operator of thebrokerage, the son of a of members of UVTC and mother of an operator of the brokerage. In all cases, the success rate of investors was above 90% and the result was a gross profit of BRL734 million.
The gains in a short period of time at high volumes and at better prices than those obtained by other customers pointed out to the CVM, which found that business was notinitially registered principal (client) or as the brokerage house portfolio, and thenchanged to the names of those investigated. In one phase of operations, the record wasmade ​​only after they knew the outcome of the operation. The Umuarama replied thatthere were cases where the client was identified and that not all operations were positive, but the CVM decided to retain the fine.

Ibovespa Today

I selected in Fundamentus all the companies most traded, with liquidity bigger than 10 million (market loves this metrics). For the total of 86 I calculated the followings parameters:

Total Companies	86
Median Yield	2,0%
Yield > 5%	11,6%
Yield > 3%	31,4%
Median P/E	13,9
P/E < 10	15,1%
P/E < 12	32,6%

That is, for this group we have a median P/E of 14 and a median yield of 2,0%. Or we can say that for the most "popular" stocks, approximately 2/3 are now trading at a P/E bigger than 12 and a yield lower than 3%.

Sure it's not a bargain!