Emerging Market Opportunities From US Shores
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Goldman Sachs Group CEO Lloyd Blankfein expects emerging markets to keep expanding. While that growth will come with volatility, it remains an investment opportunity. Intrepid types should consider companies like Avon (NYSE: AVP) and General Electric (NYSE: GE) to take advantage of these opportunities.
While discussing the world's economic and investment backdrop with a business group in Sydney, Blankfein was recently quoted by Bloomberg as saying, “It is very, very probable and certain that [Brazil, Russia, India and China] will continue growing.” He added that they would “give the world much of its growth.”
However, he also said that this growth will be volatile. For example, he noted that China is in the midst of a shift from growth at any cost to a more controlled and sustainable level of growth. So investors should be ready for something of a rough ride.
Tupperware (NYSE: TUP) is doing much better than Avon of late. The direct seller of plasticware, kitchenware, and beauty supplies projects that Asia will see the middle class grow from 500 million to 1.7 billion by 2020, powering much of the world's middle-class growth. South America will pitch in, too, but to a lesser degree.
About 60% of Tupperware's top line comes from emerging markets. Sales were flat between 2011 and 2012, but that was largely the result of a weak third quarter last year, and recent results suggest that was a one-quarter fluke. Growth and income investors should consider the company, since its shares are trading around all time highs and it has a yield of around 2.9%.
However, Avon might offer more bang for your buck. The makeup company's top line has been on a rough upward tact over the past decade, but its profit margin has shrunk from the mid-teens to the single digits. That's led to a management shakeup and a revamp of the company, including the sale of its jewelery business.
Although recent red ink is unpleasant, Avon knows it has problems and is taking steps to fix them. While the shares have moved higher lately, they remain well off of their highs. Investors have low, but improving, expectations of the company. Latin America represents nearly 50% of the business today, with Asia comprising another 10% or so. That gives Avon more room to grow in Asia than Tupperware.
With low expectations and a turnaround under way, more aggressive investors should consider Avon for emerging market exposure. More conservative investors, though, should stick to Tupperware.
Emerging markets make up about half of ABB's (NYSE: ABB) business and around 35% of GE's. That makes ABB a more direct play on the space. The company makes everything from circuit breakers to robots, and has a focus on power. That's an area that will be increasingly important in the future.
ABB's shares sold off after it released second quarter earnings. Although generally strong, the company's European business has been dragging down results. And a soon to be installed CEO will have to handle the integration of notable acquisitions like Baldor Electric, Thomas & Betts, and Power-One. That's a lot to deal with.
That said, the shares yield around 3.2% and the dividend has been increased regularly since it was initiated in 2006. Weakness here could be a buying opportunity for growth and income investors willing to monitor the integration of acquisitions and the European business' turnaround efforts under a new CEO.
General Electric, on the other hand, has already been through the valley of death and is on the mend. Indeed, the global industrial giant's financial arm brought it low during the 2007 to 2009 recession. That's led to a refocusing of the company around its industrial core. Although it has less exposure to emerging markets than ABB, it's still a big player.
The company's second quarter earnings from continuing operations beat analyst expectations by a penny, leading the shares to advance notably. More importantly, however, GE reaffirmed its expectation for margin expansion to continue in the industrial business. GE's business is clearly improving.
Its shares yield about 3.1% and the dividend has been increased regularly since being cut during the recession. And despite a steady advance since the recession ended, the shares remain well off of their pre-recession highs. So there's still upside potential.
At the end of the day, GE is a bigger and more efficient company than ABB. While ABB is a good company with solid long-term prospects and a bigger emerging market footprint, GE looks like it offers more near-term upside right now because of more positive investor sentiment.
Emerging markets are set to power the world's growth. It will be a bumpy ride. Tupperware and Avon are two leading retailers in the space, but Avon probably offers more turnaround potential at the moment. And while ABB is a good company and a more direct play on the industrialization of emerging markets, GE's mending business is driving its stock price higher right now.
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Reuben Brewer has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company and Tupperware Brands and has the following options: short October 2013 $75 calls on 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!