For this third part of my year in review, I cover my analysis of recommended emerging market equities in 2011. Starting with the focus on the European debt crisis, emerging markets around the world saw their markets far below the levels of the S&P (SPY). As a result, I have been largely out of emerging markets equities since July. Nevertheless, there have been excellent opportunities to make money in this sectors and I expect emerging markets to outperform in 2012 as this rough year created plenty of buying opportunities.
Long Ambev (ABV) - Ambev is Anhauser-Busch Imbev's Canadian and Latin American division. In addition to selling two of the most popular beer brands in Brazil, Ambev also has the distribution rights to all of the Pepsi (PEP) products in Latin America. Since I recommended (bought it myself a few months before) Ambev on April 14, Ambev is up 24.71%. It has benefited from the growth of Brazilian consumers who can afford to buy beer and soft drinks along with optimism related to the 2014 World Cup and 2016 Olypmics. I expect Ambev's outperformance to continue in 2012 due its 27% return on investment capital and Brazil's relative insulation of the economic woes in the US and Europe compared with other emerging economies.
Long Philip Morris International (PM) - Philip Morris is technically an American company, but its growth is determined by the growth of cigarette sales in emerging markets [Altria (MO) covers the market]. Even a weak economy, smokers will continue to smoke and this inelasticity of cigarette demand has kept earnings high. As a result since my purchase of the stock Februrary 22, the stock has risen 28% (15% since the May 15 column) to reach all-time highs. Philip Morris is one of the rare stocks that provides strong growth prospects through emerging markets and consistency of profits through a high dividend yield of 3.9%. I expect Philip Morris' performance to continue into 2012.
Long Administradora de Fondos de Pensiones Provida (PVD) - This company specializes in running the privatized social security pension funds in Chile (PVD is one of two companies legally allowed to manage these funds.) As a result, it can charge higher management fees than competing mutual funds. PVD is down nearly 10% since my recommendation in August. However, its fundamentals have not changed in an adverse way over the past year. The demographics in Chile still favor growth of mandatory savings inflows and Chile is one of the most business-friendly and least corrupt nations in Latin America. A nice bonus to PVD is that it pays a high dividend yield of 9.92%.