Emerging markets look attractive buoyed by improving economic growth in a number of developing countries, a pickup in manufacturing activity, rise in commodity prices, better current accounts balances, building foreign reserves, better-than-expected earnings, and several structural reforms taken by governments.
Governments of China, South Korea and Philippines have taken large infrastructural projects. Massive government spending are also supporting private investment growth in the region, particularly in the export-oriented industries.
Meanwhile, tax reforms and business-friendly policies of the governments are bolstering investment in several Latin American countries, including Argentina, Brazil and Chile. Argentina recently proposed to reduce corporate tax rate from 35% to 25% and the lowering of employer social security contributions.
Of late, emerging markets have achieved a significant position in the global investment space. To boost growth, several emerging economies have been resorting to policy easing via interest rate cuts or offering some accommodative measures.
In 2018, emerging markets may emerge as hidden gems in the global investment arena. We have narrowed down our choices to five stocks each sporting a Zacks Rank #1 (Strong Buy) and strong growth potential.
Hot Energy Stocks To Buy For 2019: Ethan Allen Interiors Inc.(ETH)
Ethan Allen Interiors Inc. (NYSE:ETH) is a turnaround play, pure and simple. Revenue has dropped over 1% through the first three quarters of the company’s fiscal 2018. An effort to redesign a substantial amount of the company’s product line and update its brand image has had some hiccups, in terms of both production and demand. Margins have weakened, and adjusted EPS has dropped about 10% so far this year.
But investors can get “paid to wait” and Ethan Allen has cleaned up its balance sheet in the meantime. Debt has dropped to under $2 million, against $52 million in cash. The dividend has been raised steadily over the past few years, and ETH now yields a solid 3.1%.
And there is room for a turnaround here. Ethan Allen remains a well-known, high-end brand. It’s possible that the resurgence at Restoration Hardware Holdings, Inc (NYSE:RH) is hurting Ethan Allen. Online retailer Wayfair Inc (NYSE:W) looks like a formidable rival as well. But if Ethan Allen’s new products start gaining some acceptance — backed by the higher marketing spend that is hitting margins at the moment — Ethan Allen could go back to being a fearsome competitor itself.
Ethan Allen is having some growing pains at the moment, but if the strategy is viable long-term, there’s reason to see some better days ahead. With the stock bouncing recently off a five-year low, more risk-tolerant investors might be willing to give ETH another shot.
Hot Energy Stocks To Buy For 2019: Guess?, Inc.(GES)
Guess?, Inc. (NYSE:GES) was one of the biggest surprises of the first quarter. A blowout first-quarter report sent GES shares up 28%, and the run didn’t end there. GES shares now have gained over 50% so far this year and have nearly tripled from an 11-year low reached last year.
Even after the gains, there’s still a case for more upside, however. GES has managed to minimize its exposure to the more difficult and more competitive U.S. market. Instead, it’s focused its investments on Europe and Asia — and is having significant success in both regions. Asia, in particular, represents a real long-term opportunity — but drove just 7% of operating earnings in fiscal 2018 (ending January).
The balance sheet remains pristine, with almost zero debt and nearly $4 per share in net cash — about 15% of the company’s market capitalization. Backing out that cash, GES is trading at 24x FY19 consensus EPS estimates.
That’s a big multiple in the world of retail these days — and might scare off some investors. But margins remain thin, and Guess? is in the early stages of a turnaround. With GES still yielding 3.5%, income investors looking for growth could see the stock as a worthy choice.
Hot Energy Stocks To Buy For 2019: Taiwan Semiconductor Manufacturing Company Ltd.(TSM)
My pick is chip-manufacturing giant Taiwan Semiconductor Manufacturing Company. TSMC is the largest contract chip-manufacturing company in the world and provides manufacturing services to a wide range of customers serving an even wider range of markets, from the maturing mobile processor market to the fast-growing artificial intelligence chip markets.
The company’s shares recently came under pressure after it provided financial guidance for the second quarter that was below analyst expectations, thanks to a slowdown in mobile processors — though that weakness was partially offset by shipment strength in cryptocurrency chip shipments. In the near term, it’ll be tough for TSMC to make up for the weakness in mobile processors, as TSMC isn’t immune to broader market trends and the smartphone market is under pressure. Over the long term, however, I think things look good for the company.
For example, as artificial intelligence chip shipments grow, TSMC is poised to benefit, as it’s the go-to contract chip manufacturer for virtually all of the small and large players here. Moreover, while smartphone unit shipments are proving to be a bit of a letdown, smartphones keep getting more complex — which means that the chips inside of them get more complex, a trend that benefits TSMC.
Moreover, TSMC is a reasonably cheap stock, trading at less than 18 times trailing-12-month earnings. Considering that the company’s long-term growth prospects look bright and its position in the markets that it serves is strong and seemingly getting stronger, this is a chip stock that I think investors should seriously consider for their portfolios.
Hot Energy Stocks To Buy For 2019: NutriSystem Inc(NTRI)
Shares of NutriSystem Inc. (NASDAQ:NTRI) plunged after Q1 earnings in February. The company pulled down full-year guidance after admitting that it had erred with its advertising strategy for the key diet season at the beginning of the year.
I was long shares of NTRI heading into the report — and as I wrote at the time, I averaged downon my position after the post-earnings plunge. This is a company that has been growing nicely for several years — and still has a nice growth runway ahead.
A solid Q1 did send NTRI higher, but I believe there’s still more upside from a current price near $33. The company still has about $2.50 per share in cash – and no debt. It yields 3%. And the midpoint of 2018 guidance suggests a P/E around 16x, and under 15x backing out the company’s cash.
That’s a multiple that suggests Nutrisystem’s growth has come to an end – but I don’t believe that will be the case. The core Nutrisystem business isn’t performing as poorly as management feared, and will have plenty of room for a rebound in 2019. South Beach Diet, acquired for a pittance, is growing like gangbusters and should become a material contributor to profit next year as well.
This a stock that received a P/E well north of 20x just a few months ago because investors believed it had years of growth ahead of it. One poor diet season — with fixable mistakes already addressed by management — shouldn’t change that outlook.
If Nutrisystem is back on track, and get back near that multiple, there’s a case for NTRI to double over the next couple of years.
Hot Energy Stocks To Buy For 2019: Sogou Inc.(SOGO)
Sogou controls about 4% of the online search market in China, according to StatCounter, making it the country’s fourth-largest search engine after Baidu, Alibaba’s Shenma, and Qihoo 360’s Haosou — in that order. Sogou claims, based on iResearch’s numbers, that it’s the "second largest search engine by mobile queries in China" with a market share of 17% last year.
Sohu, one of China’s oldest internet companies, spun off Sogou in an IPO last November. Sohu retains the largest stake in Sogou, followed by Tencent. Tencent owns WeChat, the top mobile messaging app in China with nearly a billion monthly active users worldwide.
On its own, Sogou seems like a weak investment. But with its integration into WeChat’s ecosystem and Tencent’s QQ browser (which controls 11% of China’s mobile browser market), Sogou might stand a chance against Baidu.
Sogou currently trades about 35% below its IPO price of $13 per share, due to concerns about its sales growth, tough competition, and trade tensions with China. Yet only four analysts currently follow Sogou. On average, those analysts expect Sogou’s revenue and earnings to grow 37% and 35%, respectively, this year.
Those are robust growth figures for a stock that trades at 22 times forward earnings. By comparison, Baidu trades at 25 times forward earnings, and analysts expect its revenue to rise just 17% this year as its earnings slip 7% on higher investments. Therefore, Sogou might be a hidden gem in China’s crowded tech sector.