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While the winter season typically brings a festive spirit, investors have only just begun to spread the joy in the New Year. December 2018 proved to be worrisome for many investors as the major indices experienced some their worst pain in a decade. Understandably, there are still some investors who are seeking shelter from the storm. Nevertheless, risk-tolerant contrarians can use this time to consider emerging-market stocks to buy.
At first glance, the notion seems ludicrous. Since the beginning of October 2018, the Dow Jones Industrial Average has hemorrhaged badly, erasing nearly 16% of market value. More critically, common wisdom indicates that the U.S. is the international bellwether. In other words, wherever the Dow goes, the rest of the world will follow.
But for those looking to pick up strong companies at severely undervalued rates, emerging-market stocks represent compelling stories. Sector-based exchange-traded funds, such as the benchmark iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) have suffered steep declines throughout 2018. As a result, these investments haven't lost much ground in recent months, perhaps because the worst has faded.
On the flipside, the domestic markets could be due for sustained turmoil. While other international indices never quite got traction in 2018, the Dow stubbornly managed to go against the grain. At one point, it even appeared that blue chips would once again enjoy a standout year. But that didn't prove to be the case at the end of 2018.
However, because many investors are still shying away from any equity class, emerging-market stocks potentially offer a path to long-term profitability. Admittedly, it's a risky play because the U.S. anchors everyone else. That said, while domestic investments might still struggle, the bad news has already been baked in for several foreign names.
For the adventurous souls, here are ten emerging-market stocks to buy:
América Móvil (AMX)
When it comes to innovations in the telecommunication industry, most of the developments center on the big guns, such as Verizon (NYSE: VZ ) or AT&T (NYSE: T ). Because they lever significant resources, a conservative portfolio will feature some exposure to these stalwarts. But for greater upside potential, look south to the border at América Móvil (NYSE: AMX ).
According to the its website, América Móvil is the "leading provider of integrated telecommunications services in Latin America." In addition, if you exclude Chinese and Indian consumers, the company features the largest base of wireless subscribers. Since Latin America has always represented a growth opportunity, América Móvil's dominant position signals a must-buy for AMX stock.
More importantly, management is aggressively implementing the technologies and infrastructure necessary for the 5G rollout. In September, the company announced that it will be the first company to offer 5G services. Verizon beat them to the punch , but that hasn't stopped América Móvil from gaining a foothold in Puerto Rico .
In my view, there's nothing better than emerging-market stocks with the goods to deliver.
Source: Dan Davison via Wikimedia (Modified)
For obvious reasons, the term "building" now has a sour undertone in Mexico. Nevertheless, contrarians should take a look at Cemex (NYSE: CX ). Headquartered in Monterrey, CX stock offers exposure to one of the biggest building-materials firms in the world. Moreover, Cemex has a strong global presence in Central America, Europe and the Middle East.
Unfortunately for shareholders, the October 2018 rout devastated CX stock over a short timeframe. Over the trailing 90 days, the company lost over 30% of its market value. While that is normally cause for serious concern, I believe Wall Street is ignoring key positives.
Fundamentally, management has significantly improved its stability. Throughout the middle of this decade, massive debt levels significantly impeded Cemex. Not only that, the company's net income consistently saw red ink. However, CX has turned the ship around recently, eliminating its debt and maintaining respectable growth and profitability.
Grupo Televisa (TV)
Source: Flash.pro via Flickr (modified)
Like so many traditional media outlets, Grupo Televisa (NYSE: TV ) suffered steep losses this year. Since the January opener, TV stock has dropped more than 33%.
Admittedly, Grupo Televisa is one of the riskiest emerging-market stocks to buy. As we all know, the cord-cutting phenomenon has negatively impacted American media giants like Comcast (NASDAQ: CMCSA ). But Latin American audiences have particularly gravitated towards streaming entertainment. For instance, Mexico binge-watched the most content on Netflix (NASDAQ: NFLX ) in 2017.
So why take a shot on TV stock? For one thing, the company wields two powerhouse channels in Univision and Telemundo. Both are obviously very popular in Central America, but they also facilitate a path toward Spanish-speaking U.S.-based audiences.
Another important factor is demographics. Mexico has a growing and young population , which makes them an obvious marketing target. In addition, Generation Z leans strongly Hispanic . These two tailwinds should eventually lift TV stock to a surprising turnaround.
Wal-Mart de Mexico (WMMVY)
Source: Mike Mozart via Flickr
Generally speaking, Walmart (NYSE: WMT ) provides a reasonably stable investment during bull markets and lean cycles. While broader volatility can impede any name, a big-box retailer offers a convenient platform for essential household goods. So if you like "Wally World," you should consider adding Wal-Mart de Mexico (OTCMKTS: WMMVY ) among your stocks to buy.
As I mentioned earlier, Mexico's demographic is a goldmine for advertisers and virtually all businesses. This is because percentage-wise, Mexico has very few old people, who are unlikely to shop for the latest trends. Instead, the majority of Mexicans (40.5%) fall under the 25 to 54 years age group. Moreover, nearly 28% are aged zero to 14 years.
In other words, Mexican retailers can expect a constant flow of recurring consumers over the next several decades. Logically, WMMVY stock stands to benefit handsomely from this favorable dynamic.
TIM Participacoes (TSU)
Source: Rodrigo Soldon Via Flickr
Thanks to its blistering speed, the upcoming 5G network opens the door for multiple applications. As a major player in the Brazilian telecom industry, TIM Participacoes (NYSE: TSU ) is a prime pick among emerging-market stocks.
Recently, I featured TSU stock for its broad coverage , writing:
"The underlying company was the first mobile operator to establish a presence in all Brazilian states. Currently, TIM has 56.2 million customers under its belt, and 33.1 million are 4G customers. Overall, the telecom firm has a 24% market share in its home market."
But especially under this current context, we should note that TSU stock absorbed significant pain in the first half of 2018. Since mid-September 2018, though, shares have not only stabilized, but they have steadily gained traction. I anticipate this trend to continue as we go through 2019.
In recent years, management has focused on paying down debts and instilling fiscal discipline. Their improved profitability should endear them to investors looking for some predictability.
It's no secret that many emerging-market stocks benefit from rising energy and commodity prices. Usually, rapidly developing nations leverage their natural resources to gain a leg up on the competition. But with broader weakness cratering most industries, energy and agricultural firm Cosan (NYSE: CZZ ) appears a lost cause.
However, the markets might be signaling a possible recovery. After nearly halving from this year's high, CZZ stock is on a veritable comeback trail. Since mid-September, shares have gained a very impressive 28%. Additionally, CZZ is charting a series of higher lows, suggesting nearer-term upside.
But regardless of what happens over the next few weeks, I believe Cosan is a long-term winner. CZZ stock features exposure to the natural gas distribution business, where the underlying industry could continue to rise based on geopolitical pressures. Furthermore, its ethanol division aligns with society's push for alternative-fuel sources.
VanEck Vectors Vietnam ETF (VNM)
Among emerging-market stocks, the Vietnamese investment sector represents a radical paradigm-shift for the better. Long associated with the tumultuous Vietnam War, the Southeast Asian country has become a vibrant center for commerce. While individual opportunities remain limited for Americans, interested parties should consider the VanEck Vectors Vietnam ETF (NYSEARCA: VNM ).
I can probably write a book about the importance of Vietnam, and by logical deduction, the VNM fund. Primarily, the country is a critical counterweight to China's dominance. Unless you've been living under a rock, you know that our relations with the world's second-biggest economy is frayed. More worryingly, we apparently have a Presidency unwilling to assert American influence in critical global affairs.
Fortunately, the Vietnamese government have their own problems with Chinese aggression. As the old saying goes, the enemy of my enemy is my friend.
Second, Vietnam features a triangular population pyramid . This simply means that the country's elderly population represent a much smaller share. More importantly, the younger adult populace, or those aged between 25 to 30, have the biggest share. As such, you can expect this Southeast Asian powerhouse to lever tremendous influence over the next few decades.
iShares MSCI Malaysia ETF (EWM)
The iShares MSCI Malaysia ETF (NYSEARCA: EWM ) offers an intriguing opportunity for the hardened contrarian. In mid-August 2018, analysts maintained a neutral outlook on Malaysian markets due to a balanced risk-reward ratio. However, these same folks noted that valuations looked attractive.
Since then, the EWM has dropped roughly double-digit percentage points. Moreover, the fundamentals haven't changed that much. What really spooked the Malaysian markets is geopolitical concerns involving the China trade war. While this event is obviously a worrisome headwind, it's nothing new. The EWM had previously cratered earlier in 2018 due to deteriorating U.S.-China relations.
Evidence suggests, though, that the positives may be taking over the narrative. Malaysia had recently undergone a governmental change. The new administration is working hard to implement all its election promises. So far, Malaysian insiders have noted a slowing in the volatility .
Although anything can change this year, the EWM presents an underappreciated upside prospect.
Emerging-Market Stocks to Buy: Infosys (INFY)
Just for the sheer fact that India boasts the second-biggest population in the world, the country offers a natural place to search for emerging-market stocks to buy. Thanks to its burgeoning economy, American investors today have an ample choice of individual names to pick.
During this down period, I'd take a long look at technology firm Infosys (NYSE: INFY ). Buying INFY stock brings exposure to the company's core divisions of business consulting, information technology and outsourcing. Unlike other sector names, though, INFY features stout fundamentals.
For starters, Infosys enjoys an A+ balance sheet: management is sitting on $3.5 billion in cash, and has zero debt. Second, INFY has excellent growth and profitability metrics, along with consistently stable free cash flow.
Of course, that hasn't helped INFY stock from taking some losses this year. Since the beginning of September, shares are down 12%. Still, the company hasn't made fresh lows since late October, providing hope for a turnaround.
VanEck Vectors Africa Index ETF (AFK)
On the surface level, the African continent seemingly offers an ideal environment for emerging-market stocks to buy. The region is rich with natural resources. Moreover, several African countries feature massive population growth rates. So long as economic development keeps pace, the area can become a goldmine on multiple levels.
Unfortunately, that's not occurring due to widespread corruption and administrative mismanagement. So while I want to confidently buy into the VanEck Vectors Africa Index ETF (NYSEARCA: AFK ), it remains a highly speculative venture.
Adding to the risks is South Africa. The country is on course to repatriate white-owned land and distribute among black South Africans. While I don't want to get into the racial component of this story, the economic threat is rather pernicious. If the government can forcibly take private land - a fundamental human right - commerce will inevitably collapse.
Worse yet, Zimbabwe attempted similar measures to devastating results . Their ridiculous hyperinflation became an internet meme, and they're still recovering from the damage.
So why mention AFK? First, if cooler heads miraculously prevail, AFK could skyrocket. Second, other African countries could potentially pick up the slack. After all, the continent offers viable platforms for commodities and energy extraction.
Just be careful as AFK is one of the riskiest funds available.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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