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With uncertainty in the market, investing in speculative companies has not been a winning strategy. Instead, value stocks have returned to focus, with investors searching for quality companies at great prices.
Companies with exposure to emerging markets often receive less attention, presenting some amazing opportunities. As a result, I’ve explored three interesting markets, and outlined my favourite opportunity in each.
There is no doubt that investing in China has positives and negatives. However, there are some quality value stocks if investors can look beyond the risks. One of the features that draws me to Chinese companies is diversification. Many do not offer a single product, but instead a range of connected services. As a result, this brings a great deal of flexibility, pricing control, and brand recognition.
My favourite example is Tencent (SEHK:700). The company operates across a tremendous range of sectors, including:
- Social networking and communication
- Entertainment, music and gaming
- Information, news and maps
- Payment platforms
- Cloud services and AI
As a result, Tencent’s fundamentals are incredibly strong. With a price-to-earnings (P/E) ratio of 16.3 times, it is notably below rivals Meta at 24.5 and Alphabet at 23.2 times.
Furthermore, by operating many platforms users are likely to use daily, Tencent has the agility and brand loyalty that companies operating a single platform cannot compete with.
In recent years, India has become a hotbed of innovation, particularly in technology and e-commerce. A value stock with huge exposure to India is Infosys (NYSE:INFY). Infosys is a multinational IT services and consulting company that provides business consulting, information technology, and outsourcing services. It has highly competitive fundamentals, such as a P/E ratio of 21.1 times, lower than the sector average of 27 times.
Another interesting metric is return on equity (ROE), which shows how efficiently management are able to generate profit from investment. Compared to the industry average of 8.2%, the company’s 32.3% looks very impressive. Specifically, this efficiency can be contributed to innovation. Infosys has a dedicated research and development team, and clear focus on emerging technologies like AI and blockchain.
Coca-Cola FEMSA de México (NYSE:KOF) is a beverage company in Mexico and Latin America. It produces and distributes a wide range of beverages under various brands, including Coca-Cola, Sprite, Fanta, and Powerade.
This value stock has large exposure to the Mexican market. It holds a market share of over 60%, and has expanded into other Latin American markets, including Brazil, Colombia, and Argentina. Revenue has grown consistently, reaching over $220bn in 2022.
The company has solid fundamentals with a low debt-to-equity ratio and strong operating cash flow. Furthermore, the P/E ratio of 16.6 times is considerably lower than the sector average of 32.7 times.
There are a number of challenges in the beverage industry, including changing consumer preferences and increasing health concerns. However, the company is well-positioned to maintain its market leadership and continue growing. Further growth will be driven by strong brand recognition, efficient distribution network, and focus on innovation and sustainability.
Should I buy?
Recent years have shown us that diversification across sectors and markets is critical. Having exposure to emerging markets and finding quality companies is a core part of my strategy over the next decade. I will continue to buy such value stocks.
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