10 Emerging Market Stocks With Gains of Up to 64% in 2012
Frank Byrt
02/22/12 - 07:00 AM EST
BOSTON (TheStreet) -- In a clear sign investor sentiment is now "risk on," historically volatile emerging market stock indices are generating double-digit gains this year because the U.S. and European equities are projected to offer slimmer returns.
The benchmark MSCI Emerging Markets Index is up 16.4% this year, double that of the S&P 500 of the biggest U.S. companies, including 14% in the past 13 weeks. It hit a six-month high Monday.
But indicative of how bad things were last year in the sector, the MSCI EM index is down 5% over the past 12 months.
The gains of this year could stall given events of the past week. In what should be a boon to emerging market investors' confidence, European Union finance ministers agreed to a $172 billion bailout of Greece to avert what could have been a chaotic default.
Just as that occurred, another challenge to investor confidence emerged in the form of higher gas prices worldwide, which can stifle an emerging market economy.
That's because Iran said it will soon cut its oil supplies to the 27-nation European Union and has reportedly already turned off the spigot for the U.K. and France over the weekend.
As the EU may have to scramble for alternative oil supplies, emerging market countries will also face stiff price hikes if there is limited supply.
But long-term, emerging market stocks will continue to offer potentially big returns if demographic trends continue. "Sixty years ago, the region accounted for 68% of the world's population. Today that number has buoyed to 82%," said Morningstar analyst Abraham Bailin, in a recent research note.
And emerging market countries, including such giants as China, Brazil and India, are producing a wealthier middle class with the money to spend and invest.
In addition, their governments have continued to ease interest rates, which should lead to more economic growth and increased foreign investment.
Just look at what two leading U.S. companies have planned for emerging markets in anticipation of their continued growth.
Retailing giant Wal-Mart(WMT) reported last week that it is buying a controlling stake in Chinese online shopping company Yihaodian to boost its growing presence in the world's most populous country. China's economy is expected to grow about 8.4% this year, or roughly four times that of the U.S.
And on Tuesday, Dunkin' Brands(DNKN), the ubiquitous coffee and doughnut store chain, announced a franchising agreement with India's Jubilant FoodWorks Ltd. to open the first Dunkin' Donuts store in India by June as it bets on the growing preference among a younger and more affluent middle class to drink coffee and eat at fast-food chains.
Here are 10 top emerging-market stocks worth considering as long-term investments in inverse order of returns this year:
10. America Movil(AMX)
Company profile: America Movil is the largest telecom provider in Latin America, serving more than 230 million mobile customers in 18 countries, and provides fixed-line services in several countries. It continues to dominate the Mexican wireless market with a more than 70% market share.
Investor takeaway: Its shares are up 3.8% this year, and have a three-year annualized return of 20%. America Movil has a dividend yield of 1.22%.
Morningstar analysts say: "It's clear that America Movil is the best-positioned telecommunications company in the (Latin American) region" and it offers a "balanced and attractive investment profile because of its massive scale, considerable financial resources, and bundling capabilities."
S&P has it rated "hold," as fourth-quarter earnings were disappointing. Other analysts give it six "buy" ratings, five "buy/holds," 13 "holds," and one "sell."
9. China Telecom( CHA)
Company profile: China Telecom is an integrated telecom services provider offering fixed-line, broadband access, and mobile services. It operates the largest wireline network in China, with 170 million subscribers, or over 64% of the total market and serves over half of China's broadband access subscribers, and 117 million mobile users.
Investor takeaway: China Telecom's shares are down 5% this year, but up 8% over the past month. They have a three-year annualized return of 32%. China Telecom has a market value of $48 billion, and pays a 1.7% dividend yield.
The stock gets a "buy" rating from S&P and a $64 price target, or an 8% premium to the current price. Analysts give it three "buy" ratings, three "buy/holds," and one "hold."
Company profile: Samsung Electronics, a well-known name to U.S. consumers and the world's largest maker of TVs, manufactures a wide range of consumer electronics products, including smart phones, tablets and personal computers.
Investor takeaway: Samsung's shares are up 7% this year and have a three-year annualized return of 27%. S&P Capital IQ in Asia has a "strong buy" rating on its shares. Aberdeen Asset Management is by far the largest shareholder, with 2.9% of its stock.
7. Sasol(SSL)
Company profile: Sasol is South Africa's leading petrochemical company, with a diverse product line, such as chemicals and liquid fuels using gas-to-liquids and coal-to-liquids technologies, which convert natural gas and coal to diesel and other liquid fuels. Recently, these technologies have been attracting attention because they provide an alternative to traditional oil.
Investor takeaway: Sasol's shares are up 9% this year and have a three-year annualized return of 30%. The company's shares have a market value of $31 billion and a dividend yield of 3.26%. Analysts, who give it one "buy" rating, one "hold," and one "weak hold," estimate its 2012 earnings $5.14 per share and that that will grow by 2% in 2013, according to S&P, which doesn't have a rating on the shares.
Morningstar says Sasol's has a deleveraged balance sheet and a strong cash position so that it can self-fund new programs.
Company profile: Wal-Mart de Mexico is Latin America's largest retailer. In Mexico, it operates more than 600 stores as well as several restaurants. The company is investing heavily in new operations in Central America in addition to its Mexican stores. Wal-Mart de Mexico recently reported that fourth-quarter profit jumped 26% to $648 million on a 16% rise in revenue.
Investor takeaway: Wal-Mart de Mexico's shares are up 13% this year and 23% in the past three months. It has a market valuation of $55 billion. U.S. analysts do not follow it. Wal-Mart(WMT) of the U.S. has a controlling interest. Same-store sales in January rose 4.7%.
5. Infosys(INFY)
Company profile: Infosys, of India, is a global provider of IT-related products and services. The company's service portfolio includes consulting, system integration, software development, and business process outsourcing.
Investor takeaway: Its shares are up 16% this year and have a three-year annualized return of 35%. Infosys is a highly popular mutual fund and exchange traded fund holding. The IT outsourcing specialist rises and falls with the tech economy, and the current outlook for that sector is positive.
S&P has its shares rated "hold" as they have exceeded its price target and because of delays in decision-making from clients, particularly in Europe. Analysts tracked by S&P give it three "buy" ratings, two "buy/holds," 15 "holds," and one "weak hold." It's projected to earn $2.98 per share this year.
Company profile: Saba operates as a multi-channel, multi-product wholesale distributor principally of pharmaceutical products, health, beauty aids and consumer goods, as well as general merchandise, publications, and a variety of other products. In 2010, it had revenue of $2.7 billion and earnings of 83 cents per share.
Investor takeaway: This is a long shot. Its shares are up 19% this year, including 25.5% in the past 30 days, but as a small-cap stock with a valuation of $230 million, it doesn't get analyst coverage.
But its prospects are enticing, as it is a leading distributor of health-care products in a country in which the rising middle class is increasingly willing to spend more on such goods. Fidelity owns 4.8% of its shares, by far the largest stake of any institutional investor.
3. PetroChina( PTR)
Company profile: PetroChina, China's largest producer of oil and gas, has become China's lone super major, and its oil reserves are on par with other major international players. Controlled by the Chinese government, its operations range from exploration and production, to refining and marketing and the transmission and storage of natural gas.
Investor takeaway: PetroChina's shares are up 21% this year and have a three-year annualized return of 29%. S&P has it rated "hold," as the share price has exceeded its target price. S&P's analysts' survey found two "buy" ratings, one "buy/hold," and three "holds."
Given Iran's moves to cut back its supply to Western Europe, worldwide oil prices are likely to rise and this company could be in a sweet spot as a provider with plenty of oil assets to tap. Analysts expect its earnings to grow by 20% this year to $14.15.
Company profile: HDFC Bank, one of India's largest non-government-owned banks, has profitably grown throughout the past decade along with India's economy.
Investor takeaway: HDFC Bank's shares are up 35% this year, including 25% in the past month. Morningstar says: "We think HDFC Bank still has ample room for long-term expansion and shareholder value creation as it benefits from India's economic development." It gets two "buys," and one "hold" ratings from analysts, says S&P, which does not have it rated.
1. Tata Motors(TTM)
Company profile: Tata Motors is India's largest auto manufacturer and it also makes commercial trucks and buses, and luxury vehicles, including the Jaguar and Land Rover. The company supplies most of Asia. It also makes the world's cheapest and smallest car, the Nano. Tata Motors has automotive operations in the U.K., Spain, South Korea, South Africa and Thailand. In 2011, it sold more than 1 million vehicles.
Investor takeaway: Up 64% this year, the stock has a three-year average annual return of 93%.
It is the beneficiary of growing middle-class wealth in many emerging market countries as it covers the spectrum of car types, from the cheapest to some of the most expensive. But it could be hurt if gas prices jump as that could leave many potential new car buyers on the sidelines.
On Feb. 14, S&P lowered its rating to "hold" from "buy," citing higher commodity prices pressuring margins and higher interest rates deterring buyers. Nevertheless, S&P raised its price target to $32, which is about a 14% premium to its current price.
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