- MTN Group is the largest African telecommunications company and offers great growth with growing mobile penetration.
- Nigeria is now the largest GDP country in Africa, offering several opportunities.
- Shoprite has exposure to several key growth markets.
The 2014 World Cup kicks off in Brazil on Thursday, June 12th. A total of 32 teams will compete to win the quadrennial tournament. While Brazil could be the biggest country to prosper, with millions traveling to the region to watch games featuring their favorite countries, there are other companies that could also benefit from a strong tournament.
Aside from the companies that will benefit directly from the tournament, I thought it would be fun to look at companies headquartered or with a large presence in each of the countries. My goal of selecting one stock and ETF for every country is to introduce some unknown companies to investors and also show off some forgotten ideas.
In this portion of the series of international picks, I take a look at the regions of Africa and Asia. Africa is prospering from growing populations and increasing wealth being spread out. There is still a large population that is poor and living in underdeveloped areas. However, a growing number of families have access to supermarkets and mobile phones.
Several of these picks highlight the growth of retail and telecommunications in the region. Most of the African picks are spread out between several countries, diversifying risk and creating long-term growth through expansion.
The Asian countries in this article are mining and technology wizards, still seeing strong growth from exporting to other parts of the world. Japan, South Korea, and Australia are all high GDP countries and likewise have many large capitalization stocks to choose from.
The picks are listed in several articles, broken down by geographic region. Ideas for stocks were not found for Honduras, Iran, or Algeria. Information was obtained from ETF Database and the World Bank for many of the picks.
Stock Pick: BHP Billiton Limited (NYSE:BHP)
BHP is a huge diversified natural resource company that gives direct investment into natural resources and several countries. The company produces iron ore, petroleum, potash, aluminum, nickel, and copper. The company saw strength in petroleum recently, which increased 16% in the last nine months. Iron ore was the company's biggest segments.
One area of growth remains potash. The company has a huge $2.6 billion exploration project in Canada. BHP believes the property is the best undeveloped potash resource in the world and could give the company a strong fifth key pillar.
Shares of BHP are up only 1% in 2014 and 7% over the last year. This steady company also yields a huge 3.5%. This company is diversified in several minerals and also provides exposure to oil. The company is also selling off assets and focusing on new high growth projects.
ETF Pick: IQ Australia Small Cap (NYSEARCA:KROO)
I love this ETF as a representation of Australia, because it provides access to the key medium and small cap companies of the region. The fund holds 103 stocks and has only 27% of assets represented by the top ten holdings.
The top ten holdings include banks, airlines, steel, and entertainment. The company is 65% medium cap, 35% small cap and pretty diversified by segment. Materials makes up the largest segment with 25% of assets. Consumer (18%), industrials (15%), and financial (10%) make up the next highest portion of assets.
Stock Pick: MTN Group (OTCPK:MTNOY)
MTN Group operates in 22 countries through most parts of Africa and several Middle East countries. The company has the largest presence of any telecom in Cameroon. MTN has 7.5 million subscribers, representing over 50% of the mobile market. Cameroon remains an underpenetrated mobile region, which could mean further gains ahead for MTN.
MTN is also investing $0.3 billion to upgrade its networks in the Ivory Coast. This is a region where MTN is currently number two, behind the French telecom and international player Orange. MTN remains Africa's largest telecommunications company.
MTN has over 197 million subscribers across its massive coverage areas. Shares are near a 52-week high, but remain a good bet on future mobile penetration and buildout in Africa, where income is rising in several areas.
Stock Pick: Orange (NYSE:ORAN)
Orange was one of my top ten stock picks for 2014 and has performed nicely. The stock is up 45% in 2014. There are minimal opportunities to invest in the Ivory Coast, so this is the only pick I could find. Orange is the number one telecommunications company in the Ivory Coast, ranking above African company MTN Group.
When I selected the stock, I cited emerging markets, international expansion, and dividend yield as the top three reasons to buy the French company. Those all ring true today and the first two highlight why Ivory Coast comes into play.
In the first quarter, Orange reported total revenue declines of 3.8%. Growth in the Africa and Middle East segment was particularly strong, with revenue growth of 6% and mobile subscriber growth of 11%. Ivory Coast, along with Mali and Guinea, was cited as a key reason for the high growth.
Ivory Coast has a population of 24 million, with 19 million having mobile phone subscriptions. The people without phones represent a market that MTN and Orange can take on to grow their respective businesses. Ivory Coast represents a small part of Orange's overall business, but is one of the fastest growing.
ETF Pick: None
Stock Pick: Tullow Oil (OTCPK:TUWOY)
Tullow Oil is one company that is heavily dependent on Ghana. The oil company has over 1.4 billion barrels of oil equivalent. The key regions for the company are Uganda, Ghana, and Kenya. Tullow has had success in Ghana and has new projects that will help future revenue and earnings. A new project in Ghana is on track for oil production in 2016 and is seen as one of the keys for Tullow Oil.
Shares of Tullow Oil are up 1% in 2014. Tullow Oil shares are down 10% in the last year and down 32% in the last five years. I believe shares are undervalued with upcoming events and high growth from new wells in Africa.
ETF Pick: None
Stock Pick: Sony (NYSE:SNE)
Sometimes a huge company comes down in price enough for investors to take a bit. That's what I believe has happened to Sony. The company has seen several segments perform poorly, but continues to see strength in mobile phones, games, and entertainment. With shares down 40% in the last five years, I think this is one of the best bets in Japan.
In the last fiscal year, total sales at Sony increased 14%. Mobile devices (+6%) and games (+16%) were two of the best performing segments. The company did see operating income fall by more than 80% and a loss posted for the full fiscal year.
With a market capitalization of $17 billion and trailing twelve month sales of $45 billion, Sony looks cheap. The company will continue to see high growth with the success of the PlayStation 4 and exciting smartphones.
ETF Pick: Japan Hedged Tech, Media and Telecom (NYSEARCA:DXJT)
There are 17 ETFs to choose from with 98% or more weighting for Japan. Out of all of those, my selection is this gem from Wisdom Tree. The fund just launched in April of this year and offers great exposure to several tech markets, where Japanese companies have a history of success.
SoftBank, which owns stakes in huge companies, is the number one company with a weighting of 9%. Other top ten holdings include highly recognizable names like Canon, Hitachi, Panasonic, Sony, and Kyocera. While the top ten represent over 50% of assets, the fund has 92 stocks giving great diversification.
Stock Pick: Shoprite (OTCPK:SRGHY)
I wrote recently on how I was bullish on Nigeria going forward. The country recently passed South Africa as the leading GDP country in Africa with $510 billion. My pick for a company to invest in Nigeria's success is Shoprite, even though the majority of its revenue comes from South Africa.
Shoprite is a leading retailer in Africa with more than 1450 owned locations and an additional 380 franchised. The company has a presence in 16 countries including: Angola, Botswana, Ghana, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe, and Democratic Republic of Congo. The company has 1185 and 337 company owned and franchised stores in South Africa, and 240 company owned and 40 franchised locations in other African countries. Shoprite has supermarkets, liquor stores, fast food stores, furniture stores, pharmacies, meat stores, money centers, ticket outlets, and is a franchisee of 7-Eleven.
Nigeria only has 8 Shoprite stores, but I believe the company is in the process of rapid expansion in the region either through acquisitions or fast buildouts. This is a company that will continue to benefit from not only the growth of Nigeria, but other parts of Africa as well. Shares of Shoprite sell near 52-week lows and are down 55% in the last year.
ETF Pick: Global X Nigeria Index ETF (NYSEARCA:NGE)
My Nigeria article centered on stocks and ETFs to capitalize on Nigeria becoming the biggest GDP country in Africa. This is my favorite pick with an expense ratio of 0.7% and strong positions in banks and companies like Nestle Nigeria and Nigerian Breweries. The fund has 42% of assets in financials, 29% in energy, and 19% in consumer companies. Banks make up three of the top four holdings of the ETF.
Nigeria continues to be a favorite investment region of mine. The country saw GDP hit $510 billion in 2013, more than $100 billion ahead of second place South Africa. The United Nations believes the population of Nigeria will pass the United States by the year 2045. It is also believed that Nigeria will be the third largest population in the world by 2045.
Stock Pick: Korea Electric Power (NYSE:KEP)
Korea Electric Power is one of the leaders of power production in the country. The company has 598 (as of 12/31/13) generating units. Together, over 70,000 megawatts of power are produced. Korea Electric generates power using nuclear, coal, oil, natural gas, hydro, wind, and solar technology.
Shares trade for around $19 each, which puts the price to earnings ratio at less than 10 times the $2.13 expected in the current fiscal year. Next year, analysts see earnings increasing to $2.85. A simple price to earnings multiple of 8 on a forward basis represents a share price of $22.40. I believe this company has room to run on a simple valuation basis.
ETF Pick: Korea Hedged Equity (NASDAQ:DXKW)
Not that there's anything wrong with extra exposure to the large technology company, I just think there is a large number of good large cap Korean stocks.
This ETF launched in November of 2013 and currently has $8 million in assets. Samsung is the largest holding with 12% of assets. However, companies like LG, Kia, and Hyundai also make up large stakes. Technology (24%), industrial (23%), and consumer (20%) make up large segments in the fund. Large cap stocks make up 89% of total assets.
Editor's Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.