5 Stocks to Buy on Emerging-Market Weakness
Take Brazil for example. The Brazilian market index, the Bovespa, dropped 6.96% last week. That might not sound so bad given that the S&P 500 dropped 6.54% over the same period, but the Brazilian currency, the real, also declined dramatically, by about 6.6%. Taken together, the total loss in U.S. dollars was about 13.1%. Accordingly, the iShares Brazil ETF
There are several reasons why the commodity, currency and stock markets in the emerging markets are experiencing weakness.
- The emerging markets are the economic growth engines around the world. In turn, the emerging-market countries rely on that growth, which is derived from manufacturing products for export to the more-established economies such as those in Europe and North America. As Europe faces severe economic problems and as fears of a new recession in the U.S. continue to surface, the emerging markets face a dramatic slowdown in their exports.
- Despite the all-time-low short-term interest rates in the U.S., along with the decline in long-term rates as a result of the Federal Reserve's Operation Twist, the U.S. dollar and U.S. government securities were the subject of a massive flight to quality as global investors rushed to park their money in U.S. dollar investments and fled the euro and emerging-markets currencies.
- Many of the emerging-market nations rely on extractive natural resources such as gold, silver, copper and crude oil to generate exports. As demand for those commodities fell last week and as over-margined traders liquidated their positions, commodity prices denominated primarily in U.S. dollars fell around the world.
- BRIC nations may be starting some trade wars among themselves. Last week, Brazil placed a 3,000-basis-point increase in automobile tariffs. This comes after Brazil jacked up tariffs on steel imports. Presumably, the target was Brazil's largest trading partner, China. Maybe some side discussion between Brazil and China took place this past weekend at the G-20 meeting to calm down these trade issues.
- In the United Nations, a push is being made to press for a vote on Palestinian statehood. Though President Obama and the U.S. will veto any such proposal, the issue is to global emerging markets uncertainty.
This emerging-market weakness has created a great deal of opportunity for investors. Here are five post-market-slide opportunities in emerging markets to consider for investment.
The best way to describe China Life Insurance
The Chinese economy continues to grow at a rapid pace, of about 9.5% -- albeit at a much slower rate than it experienced over the past few years. As more Chinese purchase automobiles, the need for insurance will increase. Chinese savings will be poured into annuities and life insurance products.
China Life, which was founded in 1949 and is well-established throughout the country, has a very strong balance sheet with very little debt. I first bought shares of China Life when shares were publically issued in the ADR market in 2004 and have followed it ever since. I sold shares over time, liquidating the last small amount at just under $47 earlier this year.
With the stock now selling at $35, below price levels of the financial crisis of 2008-2009, I am seriously considering re-entering a position in the stock.
Telefonos de Mexico
If China Life is the MetLife of China, then Telefonos de Mexico
Telmex declined 5.35% last week, excluding its quarterly ex-dividend of 23 cents. Most of that decline was forex-related; the Mexican peso fell 4.8% last week. Just as AT&T is a low-growth high-yielding stock, so is Telmex, with a dividend of about 6%.
Of all the stocks I have placed in this portfolio, Telmex is the one that offers the most consistent long-term stock price stability with excellent income generation. Please note for those of you who look at charts that the company issued a one-time special $17 dividend in June 2008.
Then the global wheels came spinning off. Last week, Petrobras got hit with the triple whammy of declining crude oil prices, a weakening Brazilian real and a weak stock market. If there was ever a time to get contrarian on a particular stock, now is that time with Petrobras.
The weakness in the crude oil market and Petrobras will not last forever. Petrobras sells for about 6 times earnings, compared with 9 times earnings for ExxonMobil
Just last week, Arcos Dorados announced its first-ever dividend of 6 cents per share since going public earlier this year. McDonald's continues to generate strong sales growth all around the globe and has performed extremely well, declining a mere 1% last week and rising about 16.4% on a total-return basis for 2011 year-to-date. Last Friday, Raymond James initiated coverage on McDonald's with an outperform rating and a $95 price target. The stocks was featured recnetly in "5 Stocks to Trade for End-of-Month Gains and on a list of 20 Top-Yielding, Top-Rated Stocks to Buy.
One thing we do know about McDonald's is that the company performs well in challenging economic conditions -- and Arcos Dorados should be no different. The decline in ARCO is an opportunity to pick up a strong company at a severely discounted price.
Additionally, Arcos Dorados was one of the top stocks with the most hedge-fund action in the most recently reported quarter.
What is really intriguing is that the company holds about $30 million net in cash and short-term investments. The net cash balance is nearly two-thirds of the stock's market cap. The company is looking to expand further into the digital media and desktop solutions arena, having recently closed on the acquisition of SmileBox, a photo-sharing company based in the U.S., and secured a $20 million credit facility for future acquisitions.
IncrediMail's stock was performing quite well through the middle of July but has been disappointing ever since the summer correction began. Selling at 5 times trailing earnings and with a big cash hoard, IncrediMail makes for an interesting opportunity in the microcap space.
IncrediMail, one of TheStreet Ratings' top-rated Internet stocks, is also one of the highest-yeidling computer software and services stocks.
To see these stocks in action, visit the 5 Post-Market-Slide Opportunities in Emerging Markets portfolio on Stockpickr.