Some of the best investment opportunities arise during economic downturns.

For most, however, these opportunities are only apparent in hindsight, after the last fearful investor capitulates. Those rare investors who seize such opportunities will reap outsized returns.

But this type of investing is only for the most aggressive investors, the type who have the discipline to buy when everyone else is selling and the fortitude to hang on until the cycle turns in their favor.

After all, markets gripped by fear can remain irrational for some time.

Banco Bradesco (NYSE: BBD) is a case in point. This top-performing bank, Brazil’s second-largest, has had its valuation dragged down by a wave of negative sentiment, causing investors to lose sight of the fundamentals.

In fact, Brazil’s entire banking sector has been hit hard over the past few weeks because investors are worried about rising defaults and higher borrowing costs should Brazil lose its investment-grade credit rating.

Consequently, the entire Brazilian banking sector is trading at a 40% discount to the country’s stock market–the cheapest level in three years.

The biggest irony about this selloff is that it has transpired even as analysts raised their earnings estimates by at least 9% this year.

To be sure, Brazil is in a very bad recession. The country’s economy has been roiled by the collapse of the global commodities supercycle as well as major trading partner China’s own economic slowdown.

The investment bank BNP Paribas is predicting a contraction in gross domestic product this year of 2.5%, in contrast to growth of 0.1% last year.

And policymakers’ approach to these challenges has actually made the situation worse. According to the Financial Times, “The combination of tighter fiscal and monetary policy has intensified the downturn.”

Nevertheless, some of the best investments can be found in times of crisis. The stress from such turmoil reveals which firms can withstand the downturn and position themselves to thrive in the eventual upturn.

As famed investor Warren Buffett has often said, “Only when the tide goes out do you discover who’s been swimming naked.”

And in this downturn, Banco Bradesco definitely stands out when compared to its Brazilian banking peers. It continues to be one of the country’s most profitable banks, posting 18% returns on equity in 2012 and 2013, topping 20% in 2015, and on course to achieve the same this year.

Most of the concerns about loan defaults are with respect to state banks that lowered their lending standards. That means Banco Bradesco will actually gain market share as these banks are forced to pull back from lending to shore up their balance sheets.

Banco Bradesco is famous for its superior asset quality and its conservative loan policies. As a result, its non-performing loan (NPL) ratio remains below 4%.

Although this figure has been rising recently, the NPL ratio should remain near this level, as management expects delinquencies to remain relatively stable.

Another feature that sets Banco Bradesco apart from its competitors is that its operations are well diversified.

The bank’s insurance business (30% of earnings) is one of the best run in the country. That’s enabled Banco Bradesco to win significant market share across a number of insurance product lines.

Indeed, the bank controls 50% of the country’s health insurance market, 28% of the life insurance market, 21% of the market for pension plans, and 10% of the auto insurance market.

Rising incomes and the strength of Banco Bradesco’s brand should drive customers to its insurance offerings. Insurance premiums represent only 3.4% of Brazil’s gross domestic product, compared to about 7% to 8% in developed countries, leaving ample room for growth.

The bank’s insurance business has shown resilience throughout the economic cycle and could offset a lackluster performance in its other units as the global economy slows.

And finally, we were a little perplexed by the market’s muted reaction to Banco Bradesco’s bid for HSBC Holdings PLC’s (NYSE: HSBC) Brazil division.

As the chart below shows, its acquisition of HSBC’s Brazilian operations–the division is the 7th-largest bank in Brazil by assets–will give Banco Bradesco more market share and greater economies of scale.

Banco Bradesco’s Deal with HSBC Expands Market Share

Source: Company filing

The acquisition also gives Banco Bradesco an edge over top competitor Banco Itau in total number of branches, number of current account holders, and assets under management.

The merger is expected to be accretive to earnings per share in 2017, once the unit is integrated into the bank’s existing operations.

We believe the market will eventually realize that not all Brazilian banks are created equal. And Banco Bradesco will ultimately be rewarded for its conservative operations, diversity of earnings, and continually expanding market share.

In the meantime, when something can’t be explained, such as an irrational selloff, do as the locals do and blame it on Rio.