Although some investors view emerging markets as risky and volatile, that doesn’t mean you should avoid them entirely. Stocks from developing countries can offer huge profit potential and a nice way to diversify your portfolio if you invest in strong businesses. Since many U.S. equity valuations seem stretched after the recent rally, now might be the time to start looking into other countries for solid buying opportunities.
The global pandemic has certainly impacted the world’s economy and led to some downside for emerging market stocks, but that doesn’t mean that all of them are struggling. In fact, some of the same trends that are proving to be positive market catalysts for U.S. equities are also helping certain stocks in other countries rally as well. Let’s take a look at 3 emerging market stocks to consider buying below.
The first emerging-market company we will feature is a large information technology company located in India called Infosys. With the work from home trend driving many businesses to invest in IT services, this company is taking full advantage. Infosys helps companies to navigate their digital transformations and has many long-standing client relationships in over 46 countries at this time. It’s a company that has been getting new deals on the books at a steady rate and has no debt on its balance sheet, which are both clear positives for a growing company.
After a solid Q1 earnings report which saw the company beat analyst estimates on EPS and revenue, the stock has risen to new 52-week highs. Infosys was also able to increase Q1 net income to $558 million, a 2.2% year-over-year increase. The boost was primarily driven by strong growth in the company’s digital revenue. Infosys pays a dividend yield of 1.85% and the company generated free cash flows of $728 million in Q1, which was a year-over-year increase of 50.1%. The bottom line here is that Infosys is a consulting and outsourcing giant that is likely undervalued given the positive market catalysts occurring as a result of the pandemic.
Another great company operating outside of the U.S. that has been regularly hitting new all-time highs this year is MercadoLibre. Also known as Latin America’s answer to Amazon (NASDAQ:AMZN), the stock is up over 90% year to date and continues to exceed expectations. MercadoLibre uses its online eCommerce marketplace to sell items and help small businesses to list their products online. There’s also a fintech segment of the business called MercadoPago that is fulfilling a big need in Latin American countries that still heavily rely on physical cash payments. Although the stock has had a huge run over the last several months, the growth numbers might suggest that there is more upside in store.
Q1 was very strong for the rapidly expanding e-commerce company, with Net Revenue increasing by 70.5% year-over-year on an FX neutral basis. Total Payment Volume was up 82.2% year-over-year as well, which is a great sign for the Fintech side of the business. These numbers tell us that Latin American consumers are more than willing to use MercadoLibre’s services. The company reports Q2 earnings on August 6th and it will be interesting to see how much it is truly benefitting from the pandemic.
With Baidu, investors can gain exposure to one of the largest internet companies in the world. Baidu’s core business is China’s most popular search engine which generates revenue for the company similar to how Google does with auction-based advertising. Although China and the U.S. have their differences to sort out, the fact that China has one of the world’s most dynamic economies with more internet users than any other country makes Baidu absolutely worth a look. Although revenues decreased in Q1 for the company by 7% due to the pandemic, Baidu beat analyst estimates and it appears that China’s economy is bouncing back.
The main bull thesis here has to do with the diversified revenue streams that the company has created and its massive cash balance which will be used to invest in new technology and acquisitions. With over 100 billion CNY on its balance sheet, Baidu can easily continue allocating capital towards AI and Cloud Computing, two technologies with massive potential. It currently has the largest market share in China’s growing AI public cloud services market and is positioned to continue as an industry leader for years to come. This stock is worth a look for investors that aren’t phased by the trade conflict risk, are believers in AI technology, and are interested in adding one of the world’s leading search engines to their portfolios.
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