Over the past few weeks, data from around the world has pointed towards a slowdown of economic global growth. On May 31, it was reported that India's GDP dropped to 7.8% after climbing by more than 8% in the prior four quarters. Meanwhile, in China, the slowdown has been well-documented and Goldman Sachs recently ratcheted down its Q2 GDP growth estimate to 8.0% from 8.8%. The deceleration is partly attributable to the PRC government's actions to hike interest rates in order to stave off inflation. However, it can't all be blamed on that. Areas such as auto manufacturing and infrastructure construction have been leveling off for a few quarters now, and real estate prices have gotten to a point where some are concerned that a "U.S. type housing bubble" may be forming
Not much has been written or said about Brazil lately, but I would note that I was recently on an earnings conference call for Arcos Dorados (ARCO) -- the world's largest McDonald's franchisee and largest quick-serve chain in Latin America – and its CEO stated that Brazil's economy "may have overheated" and that he has seen some slowdown in consumer spending.
Of course, by now many are aware that on May 26, the second estimate for Q1 GDP in the U.S. was lowered to 1.8%, below the 2.0% that economists were expecting. So, with evidence mounting that global economic growth has indeed slowed, many investors are now wondering where, literally speaking, is the best place to allocate money. Generally, in my opinion, I still believe that the safest & best bet is on U.S. stocks. More specifically, in times of considerable risk –as we're in now- it is wise to turn to market leading companies with superb growth track records. Apple (AAPL), of course, is a name that comes to mind. Another alternative is to simply buy shares of the SPDR Dow Jones Industrial Average ETF (DIA), if you prefer a little more diversity.
There are many uncertainties and unknowns involved with investing in many emerging economy stocks, particularly in regards to management teams and financial controls. We have seen these risks play out particularly in China-based stocks. Further, the political risks involved with these countries are considerable. With that said, there are a few emerging market stocks that I do think merit consideration, which I touch on below:
BIDU a Good Bet
If I was to pick a China-based stock to invest in (and I'm not invested in any at this time), I would probably choose Baidu.com (BIDU). As many are aware, BIDU is the largest search engine company in China – by a wide margin, with ~ 76% of market share. Its sheer size and its longer operating history give it more credibility relative to most China-based stocks, and its growth rates and growth potential are quite compelling. One of BIDU's primary catalysts has been its transition to its "Phoenix Nest" platform, which is an updated and more enhanced advertising system. Going forward, BIDU may look to become a more significant player in the social networking space. With its dominant position in search, the company could be a formidable threat in that arena. In regards to consensus estimates, the Street is forecasting its EPS and revenue to surge by 73% and 67% this year, respectively.
Not only do its fundamentals look strong, but, shares of BIDU are also currently lifting off of a support zone around the $130 level, and have popped above its 50-day moving average. For a more comprehensive look at its technicals, we urge our readers to click on BIDU's ticker above.
Opportunity in INFY?
Shares of India-based IT and consulting service company Infosys Technologies (INFY) are down roughly 18% on the year. The stock has been hit by a potent "one-two" punch of disappointing earnings results on April 15, and then news on May 24 that it received a subpoena from a grand jury in the U.S., requiring that it provides certain documents related to business-related visas. Clearly, this could present a significant headwind for the stock. However, it is difficult to ignore INFY's strong double-digit growth rates, solid balance sheet, and now cheaper valuation. More specifically, the drop in shares has lowered its forward P/E to 18x, and its balance sheet holds $6.62/share in cash and no long term debt.
Looking at its chart, INFY appears to have found a floor around the $61-$62 level, although if it doesn't hold, further support resides a touch lower. To learn more about all of INFY's specific technical levels of interest, simply click on its ticker symbol above.
Latin America's Golden Arches
A lesser-known name that also offers a good balance of growth and value is Arcos Dorados (ARCO), which, with 6.7% of total sales, is the largest McDonald's franchisee in the world. It is also the largest quick-serve operator in Latin America, with Brazil being its largest market with 616 restaurants in that country.
ARCO is a recent IPO from April 14 that stormed out of the gate, pricing above expectations and shooting higher by as much as 41% over its first four days of trading. Shares came under pressure following its initial success, ultimately giving up nearly all of the gains achieved during its first week of trading. However, following a string of positive analyst initiations, the stock has begun to lift higher in recent sessions and investors are turning their attention back to this name. The company did report solid Q1 results on May 6, with profit up 59% to $35.5 million on 23% revenue growth. Driving the strong results were a 12.5% bump in comparable sales, in addition to it aggressive store expansion strategy as it opened 69 new restaurants during the quarter.
There are a couple concerns to be aware of, though, including rising wage costs in its geographies and a potential slow down in consumer spending in Brazil. But, all in all, ARCO offers good growth potential, it generates a lot of cash, and its valuation isn't over-extended. Investors may be attracted by the opportunity of investing in one of the world's most recognizable brand names, in markets that are growing faster than more established economies.
The Trading Reports referenced in this Article with help you make money from these stocks, while controlling risk at the same time: