According to the International Monetary Fund (IMF), emerging markets and developing economies account for close to 80% of global economic growth, almost double their share from two decades ago. The BRICS nations, Brazil, Russia, India, China, and South Africa, are expanding quickly, making their potential difficult to overlook.
Thus, investors could consider adding fundamentally sound emerging market stocks PDD Holdings Inc. (PDD), Petróleo Brasileiro S.A. – Petrobras (PBR), and Vale S.A. (VALE) for diversified growth opportunities.
Emerging markets saw strong growth in the first quarter of 2024, with robust domestic demand offsetting external economic challenges, according to Fitch Ratings. Lower inflation, rapid wage growth, low unemployment, and social benefit payments in several countries contributed to increased consumer spending.
While the G7 countries’ combined GDP is around $15 trillion greater than that of the BRICS nations, with continued higher growth rates and the potential to add more members, BRICS looks likely to overtake the G7 in terms of economic size within two decades.
Considering these factors, let’s take a look at the fundamentals of the three emerging market stock picks.
PDD Holdings Inc. (PDD)
Based in Dublin, Ireland, PDD owns and operates a portfolio of businesses. The company operates Pinduoduo, an e-commerce platform that offers products like agricultural produce, apparel, shoes, bags, mother and childcare products, food, and beverages. It also operates Temu, an online marketplace.
PDD’s trailing-12-month gross profit and EBIT margins of 62.44% and 28.57% are 68.8% and 257.2% higher than the respective industry averages of 37% and 8%. Likewise, the stock’s trailing-12-month net income margin of 28.93% is considerably higher than the industry average of 4.63%.
For the fiscal second quarter that ended June 30, 2024, PDD’s revenues increased 85.7% year-over-year to $13.36 billion. Its non-GAAP operating profit grew 139.5% from the year-ago value to $4.81 billion. The company’s non-GAAP net income attributable to ordinary shareholders and EPS came in at $4.74 billion and $0.80, up 125.50% and 121.76% from the prior year’s quarter, respectively.
Street expects PDD’s revenue and EPS for the third quarter (ended September 2024) to grow 51.7% and 71.1% year-over-year to $14.65 billion and $2.79, respectively. Furthermore, the company surpassed the consensus EPS and revenue estimates in all four trailing quarters, which is remarkable.
Shares of PDD have gained 29.9% over the past six months and 44.9% over the past year to close the last trading session at $153.09.
PDD’s sound fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PDD has an A grade for Quality and a B for Sentiment, Momentum, and Growth. It is ranked #9 among 38 stocks in the B-rated China industry.
To access PDD’s ratings for Value and Stability, click here.
Petróleo Brasileiro S.A. – Petrobras (PBR)
Headquartered in Rio de Janeiro, Brazil, PBR explores, produces, and sells oil and gas domestically and internationally. The company operates through three segments: Exploration and Production; Refining, Transportation, and Marketing; and Gas and Power.
In terms of the trailing-12-month net income margin, PBR’s 15.78% is 34.4% higher than the 11.75% industry average. Its 21.17% trailing-12-month ROCE is 63.9% higher than the 12.92% industry average. Moreover, its 7.44% trailing-12-month ROTA is 36.8% higher than the 5.44% industry average.
During the second quarter, which ended on June 30, 2024, PBR’s sales revenue grew 7.4% year-over-year to R$122.26 billion ($22.40 billion). Its gross profit increased by 5.8% from the prior year to R$61.05 billion ($11.18 billion). Moreover, the company’s adjusted EBITDA stood at R$49.74 billion ($9.11 billion).
Analysts expect PBR’s EPS for the quarter ended September 2024 to increase 4.6% year-over-year to $0.89. It surpassed the consensus EPS estimate in three of the trailing four quarters.
PBR’s stock has gained 8.8% over the past year to close the last trading session at $15.33.
PBR’s POWR Ratings reflect robust prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It is ranked #17 out of 40 in the A-rated Foreign Oil & Gas industry. It has an A grade for Quality and a B for Momentum and Stability.
Click here to see PBR’s Growth, Value, and Sentiment ratings.
Vale S.A. (VALE)
Headquartered in Rio De Janeiro, Brazil, VALE produces and sells iron ore, iron ore pellets, nickel, and copper in Brazil and internationally. The company operates through the Iron Solutions and Energy Transition Materials segments.
VALE’s trailing-12-month gross profit margin and EBIT margin of 40.66% and 33.16% are 43.3% and 204.4% higher than the industry average of 28.39% and 10.89%, respectively. Its trailing-12-month net income margin of 23.19% is 363.3% higher than the industry average of 5.01%.
VALE’s net operating revenue for the fiscal second quarter ended June 30, 2024, grew 2.6% year-over-year to $9.92 billion. Its operating income rose 34.7% over the prior-year quarter to $3.88 billion.
Additionally, the company’s net income and earnings per share attributable to VALE’s shareholders were $2.77 billion and $0.65, representing increases of 198.4% and 225% year-over-year, respectively.
Street expects VALE’s revenue for the fiscal year ending December 2025 to increase 2.2% year-over-year to $40.33 billion, while its EPS is expected to increase 2% year-over-year to $2.15 for the same period.
Over the past month, the stock has surged 13.7% to close the last trading session at $11.52.
VALE’s stable fundamentals are reflected in its POWR Ratings. Its overall rating is B, which equates to a Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Quality. VALE is ranked #8 out of 29 stocks in the Industrial - Metals industry.
Beyond what is stated above, we’ve also rated VALE for Growth, Stability, Sentiment, and Momentum. Get all VALE ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
PDD shares were trading at $143.88 per share on Tuesday afternoon, down $9.21 (-6.02%). Year-to-date, PDD has declined -1.66%, versus a 21.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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