Best stocks to buy in emerging markets
Although 2020 is unlikely to be a banner year, 2021 and beyond should boast major growth for countries like China, India, Russia and others. Emerging markets are in countries with low per capita income and are popular for investors for their growth potential in the global market. Recent weakness in emerging market stocks -- especially in the wake of the coronavirus bear market -- could be a buying opportunity, especially in China. Here are 12 of the best emerging market stocks to buy today.
Alibaba Group Holding (ticker: BABA)
Alibaba is an e-commerce and cloud services leader in China and the parent company of Taobao, TMall, Ele.Me and other platforms. Alibaba's roughly $500 billion market cap makes it one of the largest public companies in the world. Even as COVID-19 practically destroys 2020 growth prospects, analysts expect 27% compound annual revenue growth in fiscal 2021 and 2022 and say cloud services will help boost margins. Alibaba hit 52-week highs in early 2020 after an initial public offering in Hong Kong, which granted Chinese investors their first opportunity to invest. Despite all the chaos, BABA shares only lost about 20% as the coronavirus pandemic raged through the markets.
Naspers Limited (ADR) (NPSNY)
This South African holding company embodies the Wall Street saying, "You only have to be right once." In 2001, the outfit invested $32 million in Tencent, an investment that -- even after some gradual selling -- is worth about $130 billion today. Not bad. China's Tencent, one of the most valuable companies in the world, is about 31% owned by Naspers. Fortunately for keen investors, Naspers' current market value is about $60 billion. The discrepancy is partially because the company's other investments haven't been as successful and partly due to taxes that any sale would entail. But China's thriving online gaming company, which also owns properties like WeChat and a ride-hailing service, should be good enough.
Mobile TeleSystems (MBT)
Alibaba and Tencent are both Chinese tech giants with expansive global ambitions and bigger valuations than most public companies. But the best emerging markets stocks aren't all from China. Mobile TeleSystems, a telecommunications and wireless company, hails from Russia. As is typical of telecoms, MBT is a slow and steady grower, rewarding shareholders with a nice dividend. In fact, "nice" is an understatement: Mobile TeleSystems yields more than 12%, in addition to trading for less than seven times forward earnings. MBT is a fine foreign stock to buy for the long term. Just keep in mind fluctuations in the ruble and geopolitical tensions can weigh on its shares.
Telkom Indonesia (TLK)
Forget about Russia and China for a second. Since 1960, Indonesia's population has tripled to about 264 million people, growing roughly three times as fast as the U.S. population. Indonesia's gross domestic product also grew by 8% in 2019, which is an extremely impressive clip. TLK, the country's premier wireless giant, should continue to benefit from these secular macroeconomic tailwinds. Shares trade for less than 13 times earnings, while also boasting minimal debt and paying a 4% dividend. With annualized sales growth of 10% annually for the last five years, TLK, like Mobile TeleSystems, won't blow your hair back with growth, but it is still an attractive stock to buy.
Taiwan Semiconductor (TSM)
Taiwan Semiconductor is the global leader in integrated circuit manufacturing. TSM shares certainly weren't hit by the trade war in 2019, with the stock gaining about 65% in all. But analyst Hazim Bahari says the company's exposure to secular growth markets such as smartphones (49% of revenue), high-performance computing (29%) and the internet of things (9%) creates plenty of additional long-term upside for investors. Part of that long-term upside relates to 7-nanometer chips for 5G smartphones, which should help trigger revenue growth once the whole coronavirus pandemic cools down a bit. With little debt on its balance sheet, a dividend of more than 5% and a price target of $65 per share, TSM looks like a steal.
China Mobile (CHL)
China Mobile is the world's largest mobile operator and has a customer base of more than 800 million subscribers. Analyst Ahmad Halim says the stock's 21% decline in 2019 pushed its enterprise multiple near 10-year lows, and the company's focus on broadband and emerging businesses has positioned it well for the future. Like many telecoms, China Mobile also has a sizable dividend yield that clocks in more than 5%. Halim has also said the company has the free cash flow to boost its dividend in 2020. The consensus price target on CHL is currently more than $50 a share, representing roughly 30% upside from late-March levels.
Arcos Dorados (ARCO)
Arcos Dorados is a stock U.S. investors may find themselves more comfortable with than Russian and Indonesian telcos. That's because the Uruguayan restaurateur operates a string of familiar joints: McDonald's Corp. (MCD). It's a franchisee of massive proportions, with more than 2,100 Mickey D's locations in 20 countries and territories throughout Latin America. A brand like McDonald's is a one-of-a-kind, immensely valuable asset with international value. ARCO is seeing modest growth in Brazil and Latin America; analysts expect 10% revenue growth in 2021.
PetroChina is the largest oil and gas company in China. While an unexpected rise in crude oil prices or a trade deal with the U.S. could certainly boost margins, PTR, like other oil and gas companies across the world, has seen its share prices plunge in recent months, with the stock now down about 50% from its 52-week high. PetroChina also now pays a solid 7%-plus dividend yield. Analysts currently have a $43 price target for PTR stock -- a level that's sure to increase should Russia and Saudi Arabia ever come to terms with oil prices.
China Life Insurance (LFC)
China Life Insurance is the largest life insurance company in China, holding a 20% market share. Analyst Siti Rudziah Salikin says China Life has several growth tailwinds, including a robust renewal business, a shift to a longer-term product mix and the potential for further market share gains. Although shares have fallen amid the COVID-19 fallout, Salikin was previously projecting 5% revenue growth in 2020 thanks to at least an 8% increase in premiums. Improvements in operational efficiency should also help stimulate further earnings growth as well, she says. Analysts have a $15.40 price target for LFC stock, implying more than 50% upside.
CNOOC is a Chinese oil exploration and production company that generates 60% of its production from offshore rigs in China. Halim says CNOOC can offset lower crude oil prices via cost controls and production growth. CNOOC has a strong pipeline of projects through at least 2021, and Halim says the company has higher margins than its peer group average. It also has a healthier balance sheet, although its state-owned status creates a bit of uncertainty for U.S. investors. CEO stock pays a roughly 10% dividend, with analysts giving CEO stock a $182 price target, implying nearly 100% upside.
Baidu is the leading internet search engine in China. After a 27% 2019 sell-off, Freeman says Baidu shares trade at an attractive valuation given its dominant market share of Chinese search and its emerging cloud services business. Baidu is currently trading at a 75% discount to its five-year trailing price-tangible book value average. Freeman projects three-year compound annual revenue growth of 11% and says operating margins should expand from 13% to 20% by the end of 2020. A $147 consensus price target from Wall Street analysts implies upside of more than 50%.
A diversified energy provider, Cosan is one of the biggest companies in Brazil and is poised to benefit as the scandal-plagued South American country recovers. GDP growth was returning following an extended contraction caused by the commodities slump that began in 2014. CZZ, which fell below $3 a share in 2016, has rallied above the $20 level, with shares exceeding peak prices reached in 2013. The company sells natural gas, lubricants, fuels and sugarcane ethanol. If you're a commodities buff and think prices are on the upswing, CZZ, which trades less than nine times forward earnings, is one of the best emerging markets stocks to buy.
The best emerging markets stocks to buy for 2020.
-- Alibaba Group Holding (BABA)
-- Naspers Limited (ADR) (NPSNY)
-- Mobile TeleSystems (MBT)
-- Telkom Indonesia (TLK)
-- Taiwan Semiconductor (TSM)
-- China Mobile (CHL)
-- Arcos Dorados (ARCO)
-- PetroChina (PTR)
-- China Life Insurance (LFC)
-- CNOOC (CEO)
-- Baidu (BIDU)
-- Cosan Ltd. (USA) (CZZ)
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