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Much is made of investment bias in the investment community, be it anchoring bias, herding or loss aversion. However, one glaring blind spot for U.S. investors is the predilection toward domestic companies.
While the U.S. is the world’s largest economy and has created generational wealth for investors, many still fail to consider the vast global landscape of investment opportunities. From semiconductor juggernauts in Taiwan to low-valuation natural resource mines in South America, there’s a whole world of attractive companies outside the U.S.
So in this article, we’ll review six U.S.-listed emerging markets stocks that deserve your attention, even if you like to play it safe with your portfolio.
| Emerging Market Stock | Price-to-Earnings Ratio |
| Taiwan Semiconductor Manufacturing Co. Ltd. (ticker: TSM) | 14 |
| PDD Holdings Inc. (PDD) | 23.2 |
| Petróleo Brasileiro SA (PBR) | 3.2 |
| Sociedad Química y Minera de Chile SA (SQM) | 4.4 |
| Frontline PLC (FRO) | 15.8 |
| Silicon Motion Technology Corp. (SIMO) | 19.3 |
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
The epicenter of global semiconductor manufacturing, Taiwan Semiconductor Manufacturing Co. Ltd.’s global importance is difficult to understate. Major players like Nvidia Corp. (NVDA), Apple Inc. (AAPL) and Qualcomm Inc. (QCOM) rely on TSM to manufacture chips at a level of complexity and scale that competitors cannot match. The company has what many would call a quasi-monopoly on complex semiconductor manufacturing.
The advent of artificial intelligence virtually guarantees that TSM will be even more pivotal to the global economy in the future, as TSM is Nvidia’s go-to manufacturer for its most advanced H100 chips – the lifeblood of large-scale AI applications.
However, global geopolitical tensions between China and Taiwan, coupled with the cyclical nature of the semiconductor industry, scare off many investors, creating an attractive entry point for the stock. TSM currently trades at 14 times earnings, while paying a 2.3% dividend.
China-based PDD Holdings Inc. is a play on the growing “social shopping” e-commerce segment, which allows buyers to team up and purchase products in groups to get bulk discounts. Launched in 2015, the company has rapidly grown its market share to become the third-largest e-commerce business in China, behind Alibaba Group Holding Ltd. (BABA) and JD.com Inc. (JD).
PDD’s recent aggressive expansion into Western markets with the launch of its viral shopping app Temu presents an exciting growth opportunity for investors. The app is currently the top app on the Apple App Store, resulting from the $1.4 billion PDD put toward advertising Temu in 2023 in a mad dash to acquire customers.
Despite PDD’s aggressive spending to onboard new Temu customers, the company is still massively profitable. In the last 12 months, PDD reported an impressive net income of $5.9 billion at an operating margin of 24.3%. By contrast, rival JD.com reported operating margins of just 2.4% over the same period.
Even with the backdrop of rapid growth and an exciting industry theme, the stock trades at a very reasonable 23.2 times earnings.
Petróleo Brasileiro SA (PBR)
Petróleo Brasileiro operates as a virtual monopoly in the Brazilian oil and gas sector, mirroring giants like Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) with its vertically integrated model that participates in all phases of the oil and gas supply chain. Like the rest of the industry, the post-pandemic surge in oil prices propelled the firm to a staggering $36.4 billion in earnings last year.
Better known as Petrobras, the company’s low valuation is compelling to value investors, but the stock is not without controversy. Trading at just 3.2 times earnings with a 25% dividend, the company has a history of scandals, failures and political risks. With its mixed state-private ownership, there’s always the risk of nationalization. And while its dividend is attractive, it is also plagued with risks, as the company recently trimmed the dividend shortly after harsh comments from Brazilian President Lula da Silva.
But risk-taking investors have been paid off, as the stock rewarded PBR investors with an 86% return last year, between dividends and appreciation. With this in mind, Petrobras’ valuation presents an enticing risk-reward proposition for contrarian investors.
Sociedad Química y Minera de Chile SA (SQM)
Chile’s Sociedad Química y Minera de Chile SA, a leading global mineral miner, is one of the leading producers of potassium nitrate, iodine and lithium.
2022 was a banner year for SQM, with revenues nearly quadrupling from the year before, largely driven by soaring lithium prices. Previously, lithium made up less than half of SQM’s revenue. However, in 2022, this figure shot up to nearly 80%, with lithium sales alone jumping from $936 million in 2021 to a shocking $8.1 billion in 2022.
The boom in lithium prices, spurred by the surging demand for electric vehicles, enabled SQM to pay record dividends, boasting a 15% yield while trading at a price-to-earnings ratio of just 4.4.
Lithium demand grows proportionally with electric vehicle demand. The data suggests that lithium’s long-term growth has a ways to go, as research by the International Energy Agency predicts that global EV sales will make up more than one-third of new car sales by 2030, up from 14% last year.
But caution is warranted. While the long-term outlook for lithium is strong, SQM recently reported a concerning 21% year-over-year revenue drop, largely linked to lithium’s short-term volatility, which is a fact of life for SQM investors.
The volatility creates a potentially lucrative entry point for investors, as SQM has declined 36% in the last 12 months.
Founded by legendary shipping entrepreneur John Fredriksen, Cyprus-based Frontline is one of the world’s largest oil tanker companies, with a fleet of 66 vessels including both crude and refined product tankers.
The business of a company like Frontline is simple: Charge companies to transport oil across the globe. When oil demand is high, tanker firms do well. The post-pandemic shortages in the oil and gas sector shook up the tanker industry and created several compelling tailwinds for Frontline.
Recent Western sanctions imposed on Russia have unintentionally benefited the tanker industry. The sanctions forced convoluted shipping routes, enabling tanker firms like Frontline to charge higher rates due to increased transportation distances.
Furthermore, tankers have become scarce. Shareholder hesitation to fund capital expenditures for ships has increased building prices and has left the market for vessels very tight, further increasing tanker day rates over the last two years.
Frontline, capitalizing on these industry tailwinds, has accrued significant cash flow. This has been funneled into dividends, stock buybacks and debt reduction, leading to a remarkable 19% dividend yield. Frontline investors have enjoyed an 85% total return on the stock in 2023 alone.
Silicon Motion Technology Corp. (SIMO)
Silicon Motion Technology, based in Taiwan, is a market leader in a niche part of the semiconductor industry, specializing in the production of NAND flash controllers for memory devices. In other words, they create the brains that power hard drives and other storage devices.
SIMO has found itself in an increasingly advantageous market position in recent years. Competitors like Samsung Electronics Co. Ltd. (005930.KRX) and Marvell Technology Inc. (MRVL) have left some of its markets, paving the way for the company to increase market share and nearly double its revenue from 2018 to 2022.
However, SIMO’s stock price hardly reflects these advancements, declining roughly 23% in 2023. SIMO was the subject of a botched acquisition attempt by MaxLinear Inc. (MXL), which valued the company at roughly $93 per share – a far cry from its current share price of $50.
Analysts believe that SIMO’s recent bearish price action can be attributed to merger arbitrage trading, stemming from the botched deal, rather than an assessment of the company’s fundamentals.
This creates a compelling opportunity to buy a highly profitable market leader in the growing semiconductor industry on a steep pullback.
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