ARCO Remains a Sizzling Emerging Market Stock for 2012

[1]As part of the Best Stocks for 2012[2] contest on InvestorPlace.com, my buy-and-hold pick for the year 2012 is Arcos Dorados (NYSE:ARCO). The stock is the Latin America-based largest McDonald’s (NYSE:MCD[3]) franchisee in the world (over 1700 locations). (Read the original ARCO stock recommendation [4]here)
Arcos Dorados shares are up over 5.3% year-to-date as of Monday’s open versus the Restaurant Industry Group’s 2.2% return and the S&P 500’s total return of 4.9%.
The start of the year has been very kind to emerging markets plays in general with the group playing catch up after a horrendous 2011.  One of the linchpins of my long thesis for ARCO was that this tailwind would come along eventually and provide us with a bit of help, I’m pleased to have been rewarded so early in the year.
Unfortunately, that same boost I’ve recieved from the index itself is also acting as wet blanket on my confidence – ARCO’s return is only half of the iShares MSCI Emerging Markets Index ETF (NYSE:EEM[5]) 11% year-to-date gain.  The EEM is an ETF that tracks the MSCI Emerging Markets Index of stocks – owning a wide variety of stocks in a wide variety of regions, including Korea’s Samsung, Russia’s Gazprom (PINK:OGZPY[6]), and Brazil’s Petrobras (NYSE:PBR[7]). Owning the index itself would have given you twice the return as my stock pick has four weeks into 2011.
But I think there is time for ARCO to make its move this year. The company reports Q4 earnings on February 22.  The consensus (only three analysts in this case) sees 23 cents in EPS on about $950 million in revenue.  The company has only reported two quarters as a public stock – they met expectations once and missed the second time – so we certainly don’t have any historical consistency gauge here on that front. I’ll be back with my thoughts on their report and other news after they report.
Until then, keep the fries warm for me.
By Josh Brown