A Safer Way To Play Emerging Markets
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
“Emerging markets performance this year so far has been a disaster,” says Russ Koesterich, Chief Investment Strategist for BlackRock. However, he still sees these countries as “a long-term value investment.” That said, over the next six months or so he suggests investors “selectively trim” this exposure. Consider shifting into Western Union (NYSE: WU), ABB (NYSE: ABB), and Tupperware (NYSE: TUP) to keep a toe in the water.
Still a Good Play
Jeff Shen, the head of Emerging Markets for BlackRock, explains that “EMs are backed by more attractive fundamentals relative to their developed world counterparts. These include stronger economic growth, more robust company growth and generally favorable demographics (i.e., young populations that are working, earning and spending).” That said, markets are driven by emotion over short periods of time, not fundamentals.
That's why Koesterich is concerned about emerging markets in the second half. In the first half, “Emerging markets suffered amid investor concerns about the implications of a possible Fed tapering later this year.” That concern isn't going away any time soon. Investors can stay in emerging markets, however, without actually investing directly in them. Here are three solid options:
Western Union provides money transfer services in over 200 countries. Only 10% of its stores are located within The United States. It touches U.S. markets in that many of the company's patrons live here and use Western Union to send money back home. That's the business that most people think of when they hear the company's name.
However, Western Union also allows customers to send money within the 200 countries it serves. And it is working to provide bank-like services in emerging markets since many of its customers don't have banking relationships. With a strong brand name and an existing store base, the money transfer specialist should be able to branch out with ease.
The company's revenues and earnings fell during the 2007 to 2009 recession. Sales picked up again in 2010 and have been heading higher. Troubles in the key U.S./Mexico business, however, took earnings lower in 2012 and should be a drag on both the top- and bottom-lines over the next year or so. The shares moved lower on the news and haven't fully recovered. So now could be a good time to buy this emerging markets specialist and its around 2.9% yield.
Emerging markets make up about half of ABB's business. That's 17 percentage points higher than industrial giant General Electric. Although ABB isn't nearly as diverse a company as GE, it has a key focus on helping customers use power more efficiently. That's an increasingly in-demand offering.
Based in Switzerland, ABB operates in more than 100 countries. The company makes everything from circuit breakers to robots. It has five operating segments: Power Products, Power Systems, Discrete Automation and Motion, Low Voltage Products, and Process Automation. Revenues are fairly equally distributed between them. As emerging markets industrialize, it has a prime seat at the table.
The company's revenues have been headed higher over the last few years, but the bottom line has been more erratic. That said, streamlining efforts have kept margins close to those of industry leader GE. And ABB has been increasing its dividend regularly since initiating it in 2006.
With a dividend yield of around 3.2% and a solid position in emerging markets, ABB should interest growth and income investors.
Tupperware gets more than 60% of its sales from emerging markets. Its low-cost direct selling business model is almost tailor made for such countries, in which small entrepreneurs can have a hard time getting access to funding. The company's exposure to emerging markets has been an important contributor to its overall success.
On that score, aside from a tiny 1.6% dip in 2009, the top line has been heading generally higher for the last 10 years. Earnings more than doubled over the decade and the dividend was increased in each of the last four years. Revenues were flat between 2011 and 2012, but that appears to have been related to a weak third quarter in 2012. Things look to be back on track since then.
Yielding around 3.1% with a price to earnings ratio of around 23, Tupperware should interest growth and income investors.
In but Not
There's more than one way to get exposure to emerging markets. One of the least risky ways is to buy shares in well-positioned companies that do a portion of their business in these nations. Western Union, ABB, and Tupperware all fit that bill. And, taken as a group, they provide access to a wide swath of the economic landscape, including the industrial, finance, and retail sectors.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Western Union. The Motley Fool owns shares of Tupperware Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!