While Warren Buffett’s piece of wisdom – to paraphrase, don’t bet against America – has proven sound, investors looking ahead may want to consider emerging markets stocks. As the phrase implies, we’re talking about economies still in their growth phase. That contrasts with the U.S., which stands in more of a maturity cycle.
Fundamentally, emerging markets stocks appeal to more risk-tolerant investors due to their potentially greater upside prospects. Nothing is guaranteed, to be clear. However, when you’re dealing with a broad canvas that is growing at a healthy clip, it’s more than possible that this momentum rubs off to downstream players. By getting onboard earlier, you might be able to catch a profitable wave.
On the flipside, the sector carries risks. For example, some experts see lower inflation undergirding a bullish narrative for emerging markets stocks. Other experts believe that such names may have difficulties dealing with rising prices. Again, much of your decision hinges on your risk tolerance.
However, if you’re willing to accept a little heat in the kitchen, the emerging markets stocks below could be viable.
MercadoLibre (MELI)
An Argentine company headquartered in Montevideo, Uruguay, MercadoLibre (NASDAQ:MELI) operates online marketplaces dedicated to e-commerce and online auctions. Primarily, the company is attractive for possibly becoming the online retail north star of Latin America. Analysts are certainly hopeful, rating shares a strong buy with an average price target of $1,750.50. That implies about 17% upside potential.
While trading mostly occurred within a sideways pattern in 2023, MELI broke out in the last few weeks. In the trailing year, shares gained over 79% of equity value. One key catalyst is surprisingly Amazon (NASDAQ:AMZN). While the e-commerce juggernaut has blown out the competition in the U.S., it struggles to compete in Latin America. That may give an “in” for MercadoLibre, which might be able to challenge Amazon’s hegemony.
Indeed, MELI offers a tremendous three-year revenue growth rate of 63.3%. Also, its trailing-year operating and net margins are among the best in the business. It also trades at a discounted price/earnings-to-growth (PEG) ratio of 0.63X. Overall, it’s one of the emerging markets stocks to consider.
Tencent (TCEHY)
A Chinese multinational technology conglomerate, Tencent (OTCMKTS:TCEHY) may be traded over the counter here in the U.S. But don’t let that fool you. Per its public profile, Tencent is one of the highest-grossing multimedia companies in the world based on revenue. Wall Street analysts are certainly not shying away from the opportunity, pegging shares a moderate buy. Also, the price target stands at $52.14, implying almost 35% upside potential.
Fundamentally, the narrative surrounding Tencent focuses on the underlying Chinese digital media market. Per Statista, experts project that the sector will generate revenue of $135.7 billion by the end of this year. Further, under this broad umbrella, the video games subsegment represents the largest, projected to hit market volume of $94.49 billion. Factor in other components of China’s internet economy and TCEHY could surprise folks.
Now, the risk factor obviously centers on China’s economic growth overall. Some data offers encouragement but it’s up in the air. But if you’re willing to take the risk, TCEHY trades at a discounted forward earnings multiple of 13.83X. Thus, it offers an enticing idea for emerging markets stocks.
Sea (SE)
An enticing albeit super-risky idea for emerging markets stocks, Sea (NYSE:SE) is only appropriate for speculators. Either that or patient investors that have a high tolerance for risk. A technology conglomerate, Sea offers three business units: digital entertainment (via the Garena gaming arm), e-commerce (via the Shopee platform), and digital financial services (via ShopeePay).
Here’s the deal. Last year, SE did not perform to expectations. In the trailing 52 weeks, shares lost more than 30% of equity value. Nevertheless, Wall Street analysts remain optimistic about the company, rating SE a moderate buy with a $54.52 price target. That implies an upside potential of almost 41%. Further, the high-side target lands at $80, implying more than double the time-of-writing stock price.
Fundamentally, much of the actual bullishness may depend on projections for the Southeast Asia internet economy. Per World Economic Forum, it’s possible for the region to reach $1 trillion in gross merchandise value by 2030.
Again, it’s super-risky and with a forward earnings multiple of 33.78X, it ain’t cheap. However, the company enjoys a massive three-year revenue growth rate of 64.8%. If you want emerging growth, this might be it.
On the date of publication, Josh Enomoto 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.
