Chingo De Dinero

One of the best ways to get a good bargain stock is to buy something with short-term negatives when their future is bright.  That is the case with Aracruz Celulose (ARA).  If you fallow the Brazilian Real, you will know that it dropped 30% vs the Dollar very fast.  One of the casualties was Aracruz Celulose.  The reason being ARA uses hedge contracts to sell Dollars and buy Reais in the future.  Why would they do this, because most of their revenues are in Dollars and most of their expenses are in Reais.  So, to keep earnings fairly constant, it is beneficial to enter into these contracts.

Did they enter into more contracts that their future business can support, maybe.  If they do not use hedge accounting, they have to show the loss on the financial instruments right now, even if they have future cash flows that are the opposite of the hedge.  Even if they use hedge accounting, they can only do it for so far in the future, while the exposure to the Dollar to Reais still there.  Basically, what I am getting at is they had these hedges, which with the depreciation of the Real lost a lot of money, but on the business side, this will lead to higher profits.  So, if you have some time, for the short term problems to clear, there could be a ton of upside.

On a side not ARA owns a ton of land, which usually is not fully valued within the Balance Sheet.   There could be a lot more value than people think, and a lot of earning potential in the future.