These stocks are the best for emerging markets.
Most American investors are unwittingly under-diversified. Putting some of your money in overseas investments is a great way to fix that. The best emerging markets stocks to buy have a range of attractive qualities — a mix of growth, value, income and, vitally, less correlation to U.S. markets — that investors in the States should appreciate. Emerging markets are a group of countries around the world that aren’t quite developed but are getting there quickly. One important thing to remember: since foreign businesses don’t take in U.S. dollars, but need to report earnings in dollars, there’s currency risk. With that in mind, here are the top emerging markets stocks for 2018.
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’s worth about $180 billion today. Not bad. China’s Tencent, one of the 10 or 15 most valuable companies in the world, is about 34 percent owned by Naspers. Fortunately for keen investors, Naspers’ current market value is just $105 billion. The discrepancy has to do partially with the fact that the company’s other investments haven’t been as successful. But China’s thriving online gaming company, which also owns properties like WeChat and a ride-hailing business, should be good enough.
Alibaba Group Holding (NYSE: BABA)
Another one of the finest emerging markets stocks to buy is Alibaba, which happens to be one of Tencent’s biggest rivals. It’s averaged 50 percent-plus revenue growth over the last five years, and sales are expected to grow another 55 percent in 2018. That’s unheard of, especially for a company of BABA’s size. With the flourishing Asian market to tap, buying BABA is like getting a chance to invest in Amazon.com (AMZN), five years ago, all over again. Alibaba currently boasts 580 million mobile monthly active users — remarkable for an e-commerce company — and grew cloud revenue by 104 percent last quarter.
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 a juicy 7.3 percent, in addition to trading for less than 12 times 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 shares.
Telkom Indonesia (TLK)
Forget Russia and China for a second. Since 1960, Indonesia’s population has tripled to 261 million people, growing about three times as fast as the U.S. population. Indonesia’s GDP growth (5 percent) is also impressive. TLK, the country’s premier wireless giant, should continue to benefit from these secular macroeconomic tailwinds. Shares trade for 18 times earnings and just 10 times free cash flow, while also boasting minimal debt and paying a 2.4 percent dividend. With sales growth of 10 percent annually for the last five years, TLK, like Mobile TeleSystems, won’t blow your hair back with growth but is still an attractive emerging markets stock to buy.
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 over 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 solid growth in all four of its divisions: Brazil (6 percent), Caribbean (7.5 percent), North Latin America (8 percent) and South Latin America (13.6 percent).
Cosan Ltd (USA) (CZZ)
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 looks like it’s 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 $10 a share — which is still about half of its peak price 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 at 13 times forward earnings, is one of the best emerging markets stocks to buy.
Grupo Supervielle SA ADR (SUPV)
Last but not least, Grupo Supervielle is an Argentinian bank with a market cap around $2.2 billion. While SUPV is a very attractive mix of both growth and value, Argentina isn’t technically considered an emerging market, so keep that in mind. With little debt on its books, a price-to-earnings multiple of 23, a forward P/E of 14, and average revenue growth over the past five years of 51 percent, you don’t find many stocks like SUPV in the U.S. That said, Grupo Supervielle is a high risk-reward play. Argentina’s central bank has targeted 15 percent inflation in 2018 and the Argentine peso is by no means stable.
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7 of the Best Emerging Markets Stocks to Buy originally appeared on usnews.com
