As an American expat living in Colombia, I have had a first-hand view of the major economic changes taking place across South America.                           

#-ad_banner-#​I first warned investors in November of last year that Brazil was heading for fiscal ruin and highlighted Petrobras (NYSE: PBR) as an underperformer, just before the state-controlled oil giant tumbled lower. Though Brazilian stocks received a pre-election bounce this past summer, I again warned investors that a likely political outcome would bring fresh bad news for Brazilian stocks. Since then, the iShares MSCI Brazil Fund (NYSEMKT: EWZ) has tumbled 20%.

As bad as it looks for the region, especially for powerhouse economies like Brazil and Argentina, things could get a lot worse in 2015. Even the seemingly healthier Chilean and Colombian economies may not be safe for investors over the next twelve months.

But can you afford to completely neglect stocks of Latin American companies? After all, the region is still expected to post GDP growth of more than 2% in 2015 and the expansion of the middle class looks alive and well. The iShares Latin America 40 (NYSE: ILF) surged nearly seven-fold over the five years to April 2008. Can you afford to miss out on another run like that?

What Kind Of Year Will 2015 Be For Latin America?
While a recent cut to bank rates in China helped boost shares in a range of Latin American and other emerging markets, 2015 is set to be a transitional year for most economies in the region.

The International Monetary Fund recently cut its forecast for GDP growth in Latin America and the Caribbean to just 1.3% for 2014. Several countries, including Brazil and Argentina, entered recession this year and most others saw their economic growth slow considerably.

Brazil is still struggling with high deficits, weak economic growth and persistently high inflation.

Argentina is dealing with the fallout of a July 2014 bond default and the peso has lost 25% of its value this year.

Chile, Peru and Colombia are suffering as lower commodity prices and a strong dollar sap the countries of foreign investment and send currencies sharply lower.

The coming year isn’t looking much better. The IMF cut its 2015 forecast for Latin American economic growth to 2.2%.

While sentiment could be revived by Argentina’s presidential election in in late 2015 and Brazil’s build-up to the 2016 Summer Olympics, things may get worse before they get better.

But there is one industry that could weather the storm and has the long-term potential to produce big returns. It stands to be a clear beneficiary of a key, ongoing investing theme: The emerging middle class.

Profit As The Region Plays Catch-Up 
The size of Brazil’s middle class has nearly doubled since 2003, growing by 52 million people to a 2014 total of 118 million, according to economic research firm SAE-IPEA.

Much of the gains are being derived from people that occupy the lower rungs of the income strata. Real GDP per capita increased 78% over the decade through 2013, and though the general economy is slowing, consumer spending is still relatively strong. 

You can visualize the strengthening middle class by looking at telecom industry trends. Smartphones now account for 26.8% of all mobile usage in Brazil, a figure that is expected to rise to  37.4% by 2016. Look for further gains in subsequent years as penetration rates expand to global averages. In the United States, smartphones saturate 63.8% of the mobile market.

As far as telecom companies with American Depository Receipts, the field is limited to a handful.

My favorite is Telefonica Brasil (NYSE: VIV), which  books 65% of its revenue from wireless, with smartphones accounting for 40% of its wireless base.

The company has clear momentum. Even as the general economy slowed, data usage was up 54% in the first nine months of 2014 compared to the same period last year. VIV now has 90 million subscribers, and is taking market share, thanks to  the lowest dropped-call rates and the highest customer service ratings in the country.

Beyond the company’s phone segments, Telefonica Brasil also provides broadband access and pay television services. The recent agreement to buy Global Village Telecom will increase the company’s reach outside of the Sao Paulo state to the whole country.

Shares are attractively-priced, trading for just 12.4 times trailing earnings, well below the industry average multiple of 16.0. The current consensus expectation that per share profits will slip 25% to around $1.30 next year is too bearish. I anticipate 2015 EPS in the $1.60 range.  

If that happens, and investors re-rate this stock as meriting a multiple of 15, then look for shares to move toward $24 from a recent $19.50. I would set a buy under price of $22 per share and collect the 2% yield while waiting for shares to rebound on emerging middle-class growth.

Risks To Consider: Brazil and many of the countries in Latin America could see more economic weakness next year as rising rates in the United States slow the flow of foreign investment and governments struggle with high debt loads. In this scenario, even strong players like Telefonica Brasil may see bouts of volatility and investors need to be ready to ride out short-term gyrations.

Action To Take –> There is a lot to be worried about for Latin American stocks right now but you still need exposure in your portfolio to the massive potential growth in the region. Stick with consumer goods and companies like Telefonica Brasil that can withstand weakness in the economy.

Latin America is not the only international investment you should be considering. High-Yield International is your best source for investing trends, opportunities and sky-high yields abroad. In fact, 79% of the world’s highest-yielding stocks are overseas. For more information about international investing, click here.