Motley Fool: Arcos’ arches could be golden for your portfolio

SUNDAY, MARCH 11, 2012

Consider Argentina-based Arcos Dorados (NYSE: ARCO) for your stock portfolio. Its name means “Golden Arches” in Spanish, and it’s the world’s largest franchisee of McDonald’s restaurants.

Arcos purchased what was formerly McDonald’s Latin American and Caribbean business in 2007 for $698 million and was granted a 20-year agreement (renewable in 10-year increments) to be the exclusive operator and franchiser of McDonald’s restaurants in most of Latin America and the Caribbean.

McDonald’s has more than 14,000 restaurants in the U.S. alone. In all of Latin America, Arcos’ total number of stores is about 1,800, and yet the population it serves is almost twice as big. That spells room for growth.

Increasing modernization and rising personal incomes in Latin America should boost demand for convenience foods. Take Arcos’ largest market, Brazil. According to the Brazilian Ministry of Finance, 29 million Brazilians joined the middle class from 2003 to 2009, while the percentage of Brazil’s population living in poverty decreased by almost half. It’s no wonder Arcos’ sales at existing stores were up a whopping 16 percent last quarter.

There’s no guarantee, but Arcos may deliver years of market-beating growth. Its annual revenue already tops $3 billion. (The Motley Fool owns shares of Arcos Dorados, and our Income Investor newsletter has recommended shares of McDonald’s.)

Ask the Fool

Q: What does Islamic investing entail? – C.D., Lafayette, Ind.

A: Just as “socially responsible investing” involves avoiding certain kinds of companies, such as those involved in tobacco, guns, alcohol or defense, those who want to invest in accordance with Islamic tenets also screen out certain industries. Companies generally avoided are in industries such as alcohol, gambling, pornography and pork – and often weapons, tobacco and media companies, among others.

A key principle of Islamic finance is the prohibition against paying or earning interest. Thus, Islamic investors will steer clear of many financial services companies such as banks and insurers. Even nonfinancial companies might be rejected if they receive a significant sum of interest in their income. Alternatively, the investor might donate to charity the portion of earnings that come from interest.

The avoidance of financial companies served Islam-compliant investors very well during the big credit crisis that sent the stock market down sharply and most financial companies down even more. Shares of Citigroup, for example, plunged 73 percent in 2008, and Bank of America dropped 60 percent. (The Motley Fool owns shares of Citigroup and Bank of America.)

You don’t have to be Muslim to invest according to Islamic tenets. The Amana family of mutual funds, for example, has a strong performance record and is open to just about anyone.

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