Investors tend to seek growth when allocating capital, particularly when considering what bonds yield right now. Accordingly, many emerging markets stocks are seeing an uptick in investor interest, given the growth rates of these markets relative to the developed world.
Accordingly, influential institutions, including BlackRock, agree that there are legitimate reasons to invest in emerging markets stocks rather than those of developed markets.
For one, emerging markets stocks tend to be undervalued compared to their developed peers. This makes sense, given that they tend to be less well-known companies. Thus, the opportunity for investors is clear. By identifying high-growth emerging markets stocks, the payoff can be significant.
There’s also an imbalance at play. Roughly half of global GDP is attributable to international markets, but stocks in those markets comprise only 15% of global market capitalization. Over time, capital will follow growth, leading to rising share prices as demand increases. All of these factors and more make emerging markets stocks, such as these, relatively attractive.
Vale SA (VALE)
Vale SA (NYSE:VALE) is a Brazilian mining firm that provides ferrous metals, base metals, and coal. Brazil is one of the noted BRICs nations identified decades ago as one of the key future sources for global growth. The country’s growth rate has slackened in the past few years, but there are genuine reasons to invest in Vale.
Not least of which is Vale’s discussion to deepen its connection to General Motors (NYSE:GM). Perhaps unsurprisingly, the growing relationship centers on vehicle electrification. Vale is considering selling up to 10% of its base metals business to GM. GM would have a strengthened supply chain, and greater access to the base metals necessary to manufacture EVs, if that deal transpires. Vale could receive $2 billion, according to recent estimates.
Vale’s revenues did not grow in 2022, and instead contracted. However, Wall Street estimates suggest that VALE stock has a 30% upside. In addition, those shares include a dividend providing long-term investors with modest income.
Ambev (NYSE:ABEV) is another Brazilian firm worth considering within emerging markets. The alcoholic beverages maker owns several globally recognized brands, including Corona, Budweiser, Stella Artois, and regional soft drink names.
From a fundamental perspective, there are a lot of positives to consider with ABEV stock. Ambev’s overall business was robust in 2022. Revenues increased 19.8% for the entire year compared to 2021. And in Q4, momentum was even more noticeable, as revenues increased 21.5% year-over-year.
Ambev is planning to establish its brands as premium choices for consumers. Based on the numbers, this strategy appears to be working. Those dramatically higher revenues result from a volume sales increase of only 3% for the entire year.
In short, Ambev is becoming increasingly more robust at convincing customers to buy its higher-priced brand offerings. Higher-priced commodities resulted in Ambev hitting the lower end of 2022 guidance, but at $2.70 per share with reasonable upside, ABEV stock has a decent narrative behind it.
Sigma Lithium (SGML)
Sigma Lithium (NASDAQ:SGML) has much in common with Vale. Both firms are headquartered in Brazil, with close ties to mining and the EV sector.
However, Sigma Lithium is much more concentrated with a project developing one of the largest hard rock lithium deposits in the Americas. The project is on the cusp of commercialization, which could make Sigma Lithium an integral part of the lithium supply chain shortly.
Sigma Lithium is commissioning plants and projects that put it on track to commence commercial production in April. That means the company will be producing battery-grade sustainable lithium very soon. In turn, Sigma Lithium should have positive Q2 cash flow. That cash flow will take the company from a potential project to commercialization and offer investors a lot of upside.
The company recently commissioned an expansion of its Greentech plant that could lead to an annual run rate of 766,000 yearly tonnes of lithium production.
Flex (NASDAQ:FLEX) is an industrial electronics manufacturing services firm based out of Singapore. The company has provided contract manufacturing to a broad base of customers for 50 years. It serves customers across multiple industries with design, engineering, and supply chain know-how.
Flex has manufacturing bases across 30 nations globally. Those operations exist across a mix of emerging and developed market economies. So, investors seeking a pure emerging market stock should look elsewhere. For most, that won’t matter. What will matter is performance and projections.
On the performance side, Flex is doing well and growing. Revenues grew to $7.75 billion in Q3, up from $6.62 billion a year earlier. The same was true of the 9-month period that ended 31 December. However, the company’s increasing cost of sales led to lower net income figures.
Overall, revenues are expected to continue growing, so the significant headwind for the firm will be the overarching global economic trajectory.
Taiwan Semiconductor (TSM)
Longer-term factors suggest that Taiwan Semiconductor’s (NYSE:TSM) stock is a good bet. The company remains a dominant, pioneering force in the semiconductor foundry business model, serving as a manufacturing base for much of the chip industry.
Investors have a few well-founded concerns about TSM stock in the short term. These are essential concerns related to the overall state of the global economy and post-pandemic on-shoring.
Demand for most everything (chips included) will fall if a global recession takes root. The possibility of a recession seems very real, given bank runs and the volatility we’ve seen in the financial system. Further, spiking chip demand spurred by the pandemic is essentially over. People aren’t forced stay inside, and demand for devices has slumped as a result. A glut of chips also built up as firms overreacted and over-ordered, scrambling to secure chips to address high demand. Those factors do not favor Taiwan Semiconductor.
That said, TSMC and other suppliers have already cut supply to deal with excess inventory. Additionally, the bigger picture favors investors. TSMC is heavily aligned with the U.S. as Taiwan-China relations falter. The company is building new plants in Arizona and Japan, focal geographies in the competitive race for chip dominance.
PDD Holdings (PDD)
China is rebounding from its Covid slump, and spending is picking up. That means PDD Holdings (NASDAQ:PDD) stock is again one to watch. The shares represent Pinduoduo, which offers e-Commerce group savings, and Temu, an online e-Commerce shop selling discount goods.
The figures underpinning the company’s logistical footprint are staggering. In 2021, PDD served more than 11 million suppliers, shipping more than 61 million orders. The company comprises two businesses, as mentioned. Pinduoduo serves a Chinese consumer base that numbered nearly 882 billion active customers this time last year.
Temu serves a North American customer base that can now access Chinese-made products at prices that appear to be close to those from the manufacturer. The sales potential of this platform remains very high, though it may depend upon the quality of the goods and their perception. For now, it’s clear that PDD stock has a lot of upside for those betting on both Chinese and global growth in the consumer goods space.
MercadoLibre (NASDAQ:MELI) is a strong play for any investor seeking exposure to Latin America, e-Commerce, and fintech/payments stocks. Despite its size and large footprint spanning 18 countries in Latin America, it continues to grow like a smaller stock. MELI stock has already been a massive winner in 2023, yet it continues to offer substantial upside for investors.
MercadoLibre is simply a story of strong, continuing e-commerce growth across a Latin American economy that has traditionally been underserved. It’s booming now – revenues increased 56.5% to $3 billion in Q4. Payment volume grew by 80%, to $36 billion during the same period.
MercadoLibre’s success is attributable to its quickly-improving logistics network. The company’s numbers back up the notion that it continues to build a world-class logistics network. Gross merchandise volume has increased by a factor of 2.5 since 2019. During the same period, the percentage of merchandise delivered within 48 hours increased from 44% to 80% at the end of 2022.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Consumer Discretionary, Retail, E-Commerce, Industrial, Energy, Renewable Energy, Battery, Lithium, Technology, Semiconductor