Investing in Latin America often requires some fancy footwork. Take Brazil. For years, this vast country was one of the greatest success stories in the region, ready to shake its emerging market label and join the major global economic powerhouses.

But then the government started dabbling in populist policies, intervening in strategic sectors to reduce consumer costs and ensure its political longevity.

This government meddling, coupled with a slowing economy thanks to lower commodity demand, helped spark a selloff in Brazilian equities the likes of which hadn’t been seen in nearly five years.

Exhibit A: After the government announced in September that it would cap electricity rates to help reduce consumer price inflation, shares of Companhia Energetica Minas Gerais (NYSE: CIG), otherwise known as CEMIG and one of Brazil’s largest electricity generators, sold off sharply.

Believing that steadily growing electricity consumption would ultimately offset the effect of the rate cut, I used that opportunity in January to add CEMIG to our Long-Term Holdings Portfolio. We’re now up by more than 20 percent on that position. Companhia Energetica Minas Gerais remains a buy under 15.

A selloff similar to that of CEMIG has recently occurred in shares of Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE: SBS), commonly known as SABESP.

A water utility in the São Paulo region of Brazil, SABESP has been treating wastewater and providing water to the country’s biggest city since 1973. It currently provides clean water to all of the municipalities it serves and treats more than three-quarters of the sewage produced in the region.

When I first wrote about SABESP in October, it was flying high with shares trading around 90. Since then, it has gone through two splits: 2-for-1 in January and 3-for-1 in April. The stock has fallen out of favor after the Brazilian government approved a tariff increase of less than half of what the company requested on April 19.

The announcement was ill-timed. SABESP is still working through a USD5 billion capital expenditure program aimed towards providing full service to every resident of the São Paulo region by the end of the decade. It’s also beefing up its capacity ahead of the FIFA World Cup, which will played in the region next year, and the 2016 Olympics which will be hosted in São Paulo.

Given that heavy investment and the government’s own goal of providing universal sanitation in the country, it came as a surprise when regulators proposed a rate increase of just 2.35 percent. I suspect that was simply a populist move by the government and the tariff will ultimately come in closer to what SABESP requested, when a final decision is made in August.

The real factor behind the lower proposed utility rates is the Brazilian elections coming up next year. When the tariff tempest started last year, President Dilma Vana Rousseff and her Worker’s Party were polling poorly, as Brazilian economic growth contracted and inflation crept up, creating politically poisonous stagflation.

However, recent polls show a nearly 80 percent approval rating for Rousseff, reducing the need for the government to pursue a populist course to ensure its survival. The Brazilian elections are now likely to maintain the status quo.

What’s more, the Brazilian Development Bank will step up over the next few years to help fund long overdue infrastructure investment in the country, which will take some of the political pressure off the government. Consequently, despite investor handwringing over Brazil, the country is likely to prove one of the most stable of the BRICs over the next couple of years. Given that positive context, SABESP looks well positioned.

It’s telling that the median analyst forecast for the company’s 2013 earnings has been creeping up, rising from BRL6.86 three months ago to BRL9.54 today. Granted the forecast for next year has fallen from BRL10.37 to BRL10.02 over the same period, but that’s more a reflection of current uncertainty than underlying fundamentals.

If you took my buy advice in October, you’re down by slightly more than 2 percent on the position after the two splits. I’m not in the habit of doubling down on losers, but I’m convinced that sentiment on SABESP is much more negative than the situation warrants.

The company is now trading at a much more reasonable 9.8 times trailing twelve-month earnings and just 8.3 times forward earnings, in line with its forecast growth. The valuation is even more favorable when you back out the BRL2.1 billion in cash on its balance sheet, which nearly covers the company’s debt.

With a 7.3 percent return on assets and 16.8 percent return on equity—more than twice that of other water utilities—the company is a strong bet on continuing Brazilian infrastructure investment in the country’s largest metropolitan region.

I’m adding Companhia de Saneamento Basico do Estado de Sao Paulo to the Long-Term Holdings Portfolio as a buy under 19.