Emerging Market Marvels: 7 Stocks Set to Soar in Developing Economies
The past few years have been all about U.S. tech stocks. FAANG names soared amid an unprecedented surge in profits in areas such as e-commerce and cloud computing. Meanwhile, much of the rest of the market was left behind. But, no trend lasts forever. At some point, the mega-cap tech companies will see their growth rates slow and their share prices lag. Another sector will take the baton and lead the market forward. After a rough decade for emerging market stocks, this unheralded asset class could be set for a rebound.
Starting valuations are highly favorable, and the recent geopolitical and macroeconomic swings have fostered new interest in many emerging markets that were previously off-the-radar. All this has set up particularly compelling opportunities in these seven emerging market stocks with high growth potential.
Trip.com (TCOM)
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The Chinese economy has been through the wringer over the past three years. China has struggled to find its footing in the post COVID-19 landscape.
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Numerous companies have moved parts of their supply chains to other Southeast Asian countries or Mexico. The U.S. has applied many restrictions and limitations on the Chinese tech sector. Domestically, Chinese real estate is struggling amid a broad and sustained downturn in the local economy.
This has had a brutal impact on a broad swath of U.S.-listed Chinese stocks. Some investors have even given up on China entirely. But for daring investors, this could be a great entry point for emerging market stocks like Trip.com (NASDAQ:TCOM). The Chinese travel website has enjoyed a robust recovery in business as the global economy reopened. And now, at long last, we’re finally seeing U.S.-China direct flights get back to healthier levels.
Even amid the restrictions and weak Chinese consumer spending, Trip has regained strong profitability, with shares currently at 15 times earnings. TRIP stock is still selling for just half of its all-time peak, which was reached back in 2017. TRIP could be set for a voyage back toward its all-time highs as the economy picks up.
JD.com (JD)
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Sticking with China, JD.com (NASDAQ:JD) is another Chinese consumer-focused company that has seen its shares underperform in recent years.
As the e-commerce boom of 2021 lost steam, JD stock has full-on collapsed. Shares are down from a peak of $100 to just $26 today. Given that sort of share price decline, you might expect that the business has imploded. But, a quick check of the numbers shows otherwise. JD generated $114 billion in revenues in 2020, $151 billion in 2021, and $152 billion in 2022. Analysts project it to bring in $152 billion of revenues again for the full year 2023.
So, the biggest has flattened out, but at a far higher level than it was before the pandemic. It is generating these revenues with tremendous profitability; JD shares go for less than 9x forward earnings. The Chinese consumer is struggling right now. But when that changes, look for JD stock to come roaring back, as the underlying business is still achieving strong results.
Grupo Aeroportuario del Centro Norte (OMAB)
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So if China has lost ground in the post-pandemic landscape, who’s been winning? Mexico is the most obvious one. Indeed, Mexico overtook China as the United States’ #1 trade partner this year amid a rush of new manufacturing activity along the U.S.-Mexican border.
Perhaps the most notable achievement for Mexico was attracting Tesla’s (NASDAQ:TSLA) new gigafactory, which is expected to be a roughly $5 billion investment near the city of Monterrey. Monterrey has been a boom city recently, winning new plants in industries spanning steel, food and beverage, and medical devices among others recently.
This brings us to Grupo Aeroportuario del Centro Norte (NASDAQ:OMAB), another one of the top emerging market stocks. Centro Norte operates 13 Mexican airports, primarily in cities near the U.S.-border. Its flagship, the Monterrey International Airport, has grown from 3.4 million passengers served in 2002 to 10.9 million in 2022.
And the company’s revenues and earnings grow even faster than traffic thanks to the revenue growth that airports earn on concessions, car rentals, hotels, and other ancillary revenue streams. Despite the massive growth profile, shares go for just 13 times forward earnings and pay a 6% dividend yield.
Walmart de Mexico (WMMVY)
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Walmart de Mexico (OTCMKTS:WMMVY) is now Mexico’s largest company by market capitalization, having recently passed America Movil (NYSE:AMX).
As the name would suggest, Walmart de Mexico is the Mexico and Central American arm of Walmart (NYSE:WMT). Walmart U.S. retains 70% ownership of the company, with the other 30% being publicly-traded. This aligns interests well and ensures that Walmart can maintain strong leadership and operational efficiency at the corporate level.
Walmart de Mexico is the nation’s largest employer and has a truly massive footprint across the country. It’s not just brick-and-mortar, either. Walmart de Mexico learned from its parent’s experience in the U.S. and invested more heavily in e-commerce and logistics in Mexico. This positioned it well for 2020, where Walmart de Mexico already had app-based ordering and delivery options ready to go and thus grabbed a big chunk of market share during the pandemic.
WMMVY stock is selling at a reasonable 22 times forward earnings. That’s a fine entry point for a company with an unimpeachable track record. To that point, WMMVY stock has risen more than 600% over the past 25 years, showing that despite Mexico’s historical economic volatility, its leading retail enterprise has consistently generated shareholder wealth.
Jeronimo Martins (JRONY)
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Jeronimo Martins (OTCMKTS:JRONY) is not a household name for most American readers. But its brands are well-known across the countries where it operates.
Jeronimo Martins operates supermarkets in Portugal, Poland, and Colombia. While Portugal may be a more mature wealthy country, both Poland and Colombia are emerging markets with great upside potential as middle classes sprout up in those nations.
Jeronimo Martins has developed a unique approach, focused on low price items and carrying a small inventory of goods that turn over quickly. This approach has taken Colombia by storm. The company opened its first Ara store in Colombia in 2013. By 2022, it had already topped 1,000 stores — a simply incredible growth trajectory.
Jeronimo Martins is a unique way to get emerging market consumer exposure. And while the company isn’t well-known yet, it does have a market cap of 15 billion euros, and it employs more than 120,000 people. It is a dominant force in its markets and is set for years of additional rapid growth in Colombia and Poland.
Bancolombia (CIB)
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Sticking with Colombia, the country’s leading bank is another one of the emerging market stocks to consider.
Hailing from Medellin, Bancolombia (NYSE:CIB) is one of the nation’s most successful corporations. It has been in business for decades and has maintained a listing on the New York Stock Exchange since 1995. Shares skyrocketed from less than $2 to $60 in the early 2000s during the last big Colombian bull market.
Colombia has fallen into a slump over the past decade, though, as the price of key exports such as oil, coal, and coffee stagnated. A volatile domestic political situation hasn’t helped matters.
However, this has all become reflected in CIB stock, whose price has now slipped below $30 per share. This is rather surprising, as Bancolombia is generating record earnings per share now, and is a much more profitable business today than it was a decade ago when the stock sold for double today’s price.
Bancolombia also shares the wealth with its owners. The company typically pays about 50% of earnings out as dividends. With the stock now at less than 5x earnings, that amounts to a tremendous yield. The company has, in fact, paid out $2.74 per share in dividends over the past year, which works out to a 9.8% dividend yield today.
Corporacion America Airports (CAAP)
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Corporacion America Airports (NYSE:CAAP) is the world’s largest private airport operator by number of airports held. It controls nearly all the significant commercial airports in Argentina along with holdings in Brazil, Italy, Armenia, and several other countries.
CAAP stock went public in 2018 and almost immediately crashed as the Argentine economy succumbed to a dreadful bout of inflation. The pandemic hit and made matters worse; shares bottomed out at just $2 each as investors feared the leveraged airport operator might go bust.
However, CAAP stock has come roaring back over the past 24 months. Shares already advanced to the double-digits this year as Corporacion America Airports saw traffic return to pre-pandemic levels while profitability reached record highs.
And now a political swing has sent CAAP stock to new 52-week highs. That’s because Argentina just elected a firebrand libertarian, Javier Milei, as its new president. Milei is promising massive tax cuts, deregulation, and a complete shake-up of the Argentine economy. This is likely to bring results, at least in the short term, for an economy currently suffering from 143% inflation.
The kicker is that Mr. Milei was previously Corporacion America’s chief economist. That’s quite the unique specific-stock catalyst, as Milei is clearly familiar with the benefits and opportunities of having key private infrastructure — like airports — under private ownership.
And to top it all off, CAAP stock sells for a bargain 11 times estimated 2024 earnings even with its massive growth rate and favorable political tailwinds.
On the date of publication, Ian Bezek held a long position in WMMVY, OMAB, CIB and CAAP stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
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