The novel coronavirus has wreaked havoc on the world, but it has had a particularly brutal impact on the U.S. and its economy. There are already reports of a second wave that could stall the recovery further. And while it’s always nice to keep your capital parked at home, there are emerging markets stocks that offer an attractive alternative.
Although no country apart from New Zealand has declared victory over Covid-19, Asia has fared better than Europe during this crisis. While the U.S. and Europe grapple with the virus, several emerging economies have brushed off its effects and are showing signs of life. That’s why emerging markets stocks offer an attractive alternative to investing in the U.S.
Since several of these stocks trade at attractive valuations, they offer a window of opportunity to investors that are looking to diversify their portfolio.
So without further ado, here are four emerging markets stocks for your consideration:
- Infosys (NYSE:INFY)
- China Mobile (NYSE:CHL)
- CapitaLand Mall Trust (OTCMKTS:CPAMF)
- Arcos Dorados Holdings (NYSE:ARCO)
Emerging Markets Stocks: Infosys (INFY)
Infosys is a juggernaut in the Indian tech space. Based in Bangalore, the Silicon Valley of India, the company provides business consulting, information technology and outsourcing services to more than 1,000 customers worldwide. In March, a panic-induced selloff led to INFY stock dropping to $7 a share, but it has since recovered.
Shares are up more than 83% since March, so many will be wondering if there is any upside left. However, I still feel INFY stock has a lot to offer. The company is growing at a healthy clip, has a small but constant payout, and is invested in future technologies. Despite Covid-19, the company managed to increase revenues by 1.5% on a constant currency basis.
That came as a surprise to several analysts since there was a general belief Covid-19 would devastate finances. Investors feared clients would reassess their expenses and cut down where necessary, including contracts to the outsourcing firm.
However, Infosys managed to come up with an effective response to this crisis. Its enterprise-grade “Return to Workplace” solutions are designed to help customers that are facing issues due to the pandemic. Infosys has effectively turned a negative into a positive. With many firms looking to lay off staff, Infosys can come to the rescue through its offerings.
INFY stock trades at a 22.9 times forward price-earnings ratio. That may sound a bit pricey, but I don’t believe the bull run is over for the Indian tech giant. As discussed, Covid-19 could be a boon and lead to higher sales.
China Mobile (CHL)
A majority of the largest Chinese companies are state-owned. They constitute a sizeable chunk of the Fortune 500, and are growing at a rapid pace. That should not come as a surprise due to the size of the Chinese population and the nation’s rapid urbanization.
That brings us to China Mobile, an excellent play in the telecommunication space. With a dividend yield of 5.8% and a payout ratio between 40% and 50% for the last ten years, we can safely say the company is a stable performer. Shares are trading at a forward P/E of 9.1 times, a substantial discount to the sector median.
However, there is one thing to note before investing in CHL stock. Because the Chinese state is the largest institutional investor in the company, it will naturally direct policy. That means increased revenues and profits may not always be a priority.
For instance, despite the user base growing in the last 10-year period, revenues have not increased at an equal pace. This is because there is pressure on the government to keep prices down to placate its consumer base, consisting of almost 950 million active users.
But like a host of other Chinese state-backed firms, China Mobile is too big to fail due to its strategic importance in the country and its infrastructure. So you need not worry about the company going belly-up in the face of any issue.
Emerging Markets Stocks: CapitaLand Mall Trust (CPAMF)
At this point, shopping malls seem to be a dirty word among investors. The sector was already suffering before Covid-19 due to the rise of e-commerce. However, things took a turn for the worse due to the virus. Singapore-listed retail real estate investment trust CapitaLand Mall Trust was one of the early casualties, but it has since made up lost ground.
As expected, Q2 was devastating for the company. Tenant occupancy remained solid, but sales dropped as a majority of shops were forced to close — except those offering essential services.
However, CapitaLand is not sitting back. Instead, it’s taking a proactive approach in the face of Covid-19. Its merger with office REIT CapitaLand Commercial Trust (OTCMKTS:CPITF) is still underway. It will create CapitaLand Integrated Commercial Trust, a diversified commercial REIT with properties spread out in Singapore.
CPAMF stock trades at 0.97x trailing price-book ratio, an attractive entry point for a company with an exciting future.
Arcos Dorados Holdings (ARCO)
Several investors may want some familiarity when investing overseas. In that case, you can’t go wrong parking your capital in Arcos Dorados Holdings. The company operates 2,200 McDonald’s (NYSE:MCD) restaurants across the Caribbean and Latin America. Out of all the emerging markets stocks we have discussed, I would say this one is the most secure just because of the brand we are talking about here — one of the most recognizable in the world.
Although ARCO stock took a hammering because of the pandemic, things will stabilize once we are further along the road to recovery. However, the longer-term issue for the company is that growth in its key markets has been soft. Particularly in Brazil, which represents 45% of overall revenues.
However, the company has managed to post excellent operating numbers despite the challenging macro environment. Plus, with such an established brand under its umbrella, I am sure revenues will recover at a healthy pace. Brazil has suffered a lot due to the virus, but there is hope that we could have a vaccine later this year. That should mean 2021 will be a year of recovery for the broader markets and ARCO stock.
Keen-eyed investors should snap up this stock before the attractive entry point no longer exists.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.