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All over the world equity markets have been thrown into turmoil since the beginning of May. Constant setbacks and failures regarding sovereign debt in Europe in the second quarter has tempered optimism for workable solutions to the economic problems facing Europe.

Although S&P has crawled its way back to almost 1,400, the picture for equity markets for the remainder of 2012 is still blur. The world economies will continue to be desynchronized and misaligned the years to come, with huge emerging markets continue to grow at fast clip while mature (Western) markets will keep dwindling.

For long-term focused investors current market conditions present a great entry point for emerging market stocks. However, in a time of economic uncertainty and above average volatility in equity markets, it's wise to be selective when screening for companies.

Companies with products that are irreplaceable even during a bad economy, will see enormous demand once conditions of their economies improve. One investment strategy that can potentially yield high returns is investing in solid companies in traditional sectors such as energy and mining in emerging countries China and Brazil. Many stocks have been beaten down substantially from their 52-week highs. Listed in the table are five good candidates to consider for this investment strategy. All numbers are from Yahoo Finance at market close on August 3, 2012.

CompanyCurrent PriceHistorical HighHistorical High to Current PriceMean Analyst TargetMean Analyst Target to Current PriceP/EP/SP/B
PetroChina124,16263,70212%153,09123%10,700,701,39
Petroleo Brasileiro20,3375,19370%32,65161%7,850,930,70
Longwei Petroleum1,263,95313%6,00476%1,850,250,39
Vale S.A.18,2843,91240%26,54145%6,751,861,18
Yanzhou Coal Mining16,3241,65255%11,0067%5,910,921,07

PetroChina (PTR)

After reaching a high $263.70 on October 17, 2007 because of a position by Warren Buffett and the Beijing Olympic Games fever in China, the biggest oil company fell to $60 in 2008. The stock price gradually recovered over the past three years to $124.16. With China's inflation dropping below 2%, Chinese leaders have vowed to use further stimulus measures to boost demand for goods and services and to boost GDP growth. Meanwhile, over the past month the crude oil price has been rising from the bottom of about $80 per barrel set in July to $92 right now.

Petroleo Brasileiro (PBR)

Another emerging market oil company that had a similar price trend over the past four years is Petroleo Brasileiro. The company is the largest oil conglomerate in Brazil. What is a little dimmer for PBR than PTR is that over the past two years Brazil's economy has slowed down faster than China's economy. However, similar to China, Brazil has huge foreign reserves relative to its GDP and a relatively high prime rate right now. So, its government still has high power in untapped monetary and fiscal measures to stimulate its economy. In addition, since Rio Olympics is still four years to go and a large amount of construction projects has still to be done, Brazil's economy and oil consumption will be further spurred by Olympics games over the next three to four years. Don't forget how much Shanghai index rose over the four year period before the Beijing Olympics. The stock has dropped 73% from its all-time high, but has a great potential return.

Longwei Petroleum (LPH)

For those who are not satisfied with the potential gains of the biggest oil giants in the emerging market space and are looking for potential home-run stocks in the small cap space a company such as Longwei Petroleum might be just what you are looking for. Longwei is the only large-scale petroleum distributor from China trading in the U.S. LPH offers a unique investment opportunity for investors who prefer undervalued small cap stocks with simple and stable business models.

Because Longwei is earning a stable margin between its input price and sales price in a highly regulated oligopoly business, its net profit margin is even less susceptible to changes in petroleum prices than that of oil giants such as PTR and PBR. The stock has been beaten down from $4 in October 2010 to $1.30. Three separate groups of analysts - Rodman&Renshaw, Redchip Research, and newcomer MaxSoar Financial and Investments - independently gave price targets of more than $5 per share. The level of strong consensus and support by three analytic companies is unprecedented among Chinese small caps. If the market wakes up and pays attention again to the small cap China space the stock could trade at a P/E of 8 which is quite normal for stocks trading in the oil industry. I would say a four bagger in the making.

Also the fact that the credit lending strain is easing in China gives management the opportunity to take the company private if the stock price stays at these depressed levels.

Vale S.A. (VALE)

While oil may be the safest bet at this moment, other resource and material companies deserve a closer look too. Vale S.A., a Brazilian mining giant, has seen its stock price in free fall over the past twelve months due to a dramatic drop in commodity prices. Because Brazil and other emerging markets will still consume a large amount of iron, copper, aluminum, and nickel, demand for the company's products can increase again in 2013. As with PBR, strong growth of auto sales in Brazil will provide a nice buttress to demand for the company's products this year. Also large construction projects for the Rio Olympics will help to fuel demand. The company's top executives predict that the iron ore price would soon reverse course to rise again.

With the stock trading at only 40% of its historical high and two-thirds of mean analysts' target, the current stock price seems to be a safe entry point that can yield strong returns in the nearby future.

YanZhou Coal Mining (YZC)

The largest coal miner in China, YanZhou Coal was a darling of Wall Street from 2009 to 2011 when prices and the consumption of coal was peaking worldwide. In the summer of 2011 coal prices started to tumble and the stock price went down along.

After dropping more than 60% from its all-time high, the stock may have finally reached a bottom earlier this month and could present a good entry point right now. Because China has started cutting interest rates and bank reserve requirements to boost domestic consumption, YZC officers are seeing a rise in coal demand and prices again.

As with any investment strategy, buying just one of these five stocks may expose an investor to company specific risks and negative developments. However, by buying these five stocks using equally weighted allocation, risk is dramatically decreased. If these stocks in average recover half of their lost grounds from their all-time high within the next twelve months, the portfolio will yield a whopping 140% return within a year!

Source: 5 Emerging Market Commodity Producers With Likely Upside