It’s no secret that emerging-market stocks have taken a drubbing in recent weeks. However, with the ouster of Egypt President Mohamed Mursi, shares in developing economies have started to make a turnaround.
Just like we see every time the U.S. markets correct, it often has less to do with the strength of the companies themselves … and everything to do with how investors feel about the markets at a given time.
Where others have cause for concern, I’m enjoying the opportunity to go bargain-hunting. In fact, I think we’ll look back on this period and remember it for the terrific values that it uncovered … both in emerging markets and the U.S.-traded companies that provide exposure to them.
After all, any market that’s been running up like it’s on fire — as many developing nations’ representative indexes have done in the past few years — has to endure a cooling-off period every now and again.
Your No. 1 job as an investor is to look past today’s challenges to see straight to tomorrow’s profit opportunities. Sometimes that means getting out of harm’s way, as my Global Trend Trader subscribers recently did when I recommended they exit their Brazil plays because of political unrest there.
But that’s because I think they can get in on these plays again much-cheaper … which makes the next potential round of gains even-sweeter!
Why am I so optimistic? That’s because …
Global Corporations Are Still
Investing in Emerging Markets
As we approach the beginning of earnings season, I’m expecting the focus to again turn to U.S. earnings releases … and, in turn, to U.S. stocks.
In particular, to companies that benefit from their business relationships in emerging markets … even currently troubled areas like Brazil, Turkey, and Egypt, and also countries like China that are getting punished for not growing quickly enough.
Let’s zero in on what’s happening in Brazil as a perfect example of why patience can ultimately pay off.
In Belo Horizonte, thousands have gathered to protest against government social-program policies, corruption and the high cost of the upcoming sport events. Brazil’s third-largest city hosted a semi-final soccer game between Brazil and Uruguay in a warm-up for the 2014 World Cup.
And if the public outrage is any indication of what will happen when the World Cup arrives next year, and when the Summer Olympics arrive in 2016, it’s going to be a long couple of years for the government there.
With all these disruptions, it is probable that all big crowd functions will pose increased risks to President Dilma Rousseff’s political power and investor interest in this BRIC player. But … and here’s the important part …
This does not reverse the unstopped flow of global money.
In fact, although emerging markets have been having a tough time lately, I see the money coursing back there before long. Brazil and China have unique challenges right now, as does Turkey, but we can continue to be selective about which markets we invest in … and when.
In fact, according to the United Nations Conference on Trade and Development, global corporations for the first time ever have invested more in emerging markets than the core economies of U.S., Europe and Japan.
In its 2013 World Investment Report released last week, the BRICS countries continued to be the leading sources of Foreign Direct Investment for other emerging economies, totaling $145 billion in 2012 of 10% of the world total.
Recently Tony Sagami talked with you about tourists from China going on "shopping vacations" all over the world, and he shared the names of several Asian airlines that are set to benefit. To expand upon that list, today I’d like to share with you some additional emerging-market airline stocks that are set to soar much, much higher …
Emerging Airlines Rise to Meet Growing Demand
You know that huge numbers of young people in developing markets all over the globe are migrating from farms to cities. Yet, most of these newly independent young adults don’t have cars to go back and visit their rural relatives.
But unlike their peers in major metropolitan cities in the developed world, they don’t have access to a fully developed public transportation system that would the trip back home easy, quick or, in many cases, possible.
In many regions, treacherous mountain ranges or sprawling deserts separate travelers from their destinations. And if all that weren’t good enough for an air carrier, there’s more: Few if any competitive airlines exist to ruin the party or create the same cut-throat price competition we see in the United States and other developed nations.
The real growth potential exists, and continues to exist, with carriers serving emerging markets.
Rapidly expanding populations, and millions of people emerging from subsistence living to middle-class consumer status with discretionary income (but still largely without cars or access to superhighway networks), make these countries fertile areas for air-traffic growth.
Consider Getting Carried Away by These Stocks …
A quintet of emerging-market airline stocks in the table below serves flyers in the economically growing regions of China and Latin America.
Each is interesting in its own way as an investment, although all five have achieved annual revenue growth averaging well into the double-digit percentages over the past few years.
That’s enough to surpass other U.S. and international airlines, except for aggressive low-cost tigers like Ryanair Holdings (RYAAY) and easyJet PLC (EJTTF on the Pink Sheets).
Geographically, this group offers interesting diversity.
EMERGING MARKET AIRLINE STOCKS TO WATCH
The pair of Chinese airlines, as their respective names indicate, represents the prosperous and urban southern and eastern regions of the world’s most-populous nation.
The three Latin American airlines in the group enjoy analyst expectations of 10 to 20 percentage points in earnings-per-share growth annually over the forthcoming half-decade.
Of the Latin American air carriers in the table, Gol Intelligent Airlines (GOL) is headquartered on the Atlantic Coast nation of Brazil while LATAM Airlines Group (LFL) is domiciled in the Pacific nation of Chile.
The growth potential of air travel in Latin America can be underscored by the fact that LATAM’s $10.2 billion market capitalization is the third-largest of any world airline, behind only Delta Air Lines at $12.5 billion and Ryanair at $12.0 billion.
LATAM has been ingesting consolidation expenses from a large merger and — untypical for an airline stock in the current market — its shares have recently been closer to their 52-week low rather than their 52-week crest.
But arguably, the most-strategically located of the Latin American carriers in the table is Panama-based Copa Holdings (CPA), headquartered smack-dab between North and South America and not far from both the Atlantic and the Pacific Oceans.
It serves virtually the entire Caribbean region, where the only alternative means of getting people around are slow and expensive watercraft. No need to ever worry about competition from superhighways in that market!
And speaking of the Caribbean, Copa has been offering multiple daily scheduled flights to Cuba, which recently initiated a policy of making exit visas possible to its long home-bound population.
And if Cuba ever decides to rejoin the commercial and tourist worlds, air traffic growth to and from the island would explode.
These emerging airline stocks represent more value and much-greater growth potential than most major air carriers from developed nations, including the United States. So watch for future reports with more detailed analyses and specific investment recommendations regarding this group.