The U.S. stock market could find itself on slippery ground going into 2024. The Federal Reserve is maintaining its tight monetary policy. Corporate earnings have struggled to keep pace after a tremendous 2022. And the economy appears to be losing steam more broadly as rising interest rates are causing havoc in the housing and vehicle markets. This turbulence has led to the rise of emerging markets stocks.
But while developed countries such as the United States may face a major slowdown, there is an alternative. Emerging market equities have underperformed over the past 15 years and investors are understandably frustrated with the category.
However, the times are changing. The worldwide return of inflation and geopolitical uncertainty has pushed up commodity prices dramatically. That greatly aids many commodity-exporting countries. Furthermore, high-interest rates tend to make investors focus more on firms with high profitability today rather than more expensive firms with future growth possibilities. All these factors bode well for the following three emerging market stocks to buy.
JD.com (JD)
JD.com (NASDAQ:JD) is one of China’s leading e-commerce companies. And amid China’s lingering economic slump, JD stock is once again one of those emerging market stocks to buy.
Like many e-commerce firms, JD has seen its growth slow as the stay-at-home era has drawn to a close. China’s unique economic headwinds, along with souring relations between the U.S. and China, have caused a further drop in sentiment around Chinese tech companies such as JD.
However, things are getting out of hand. With its more than 40% stock price decline over the past year, JD has fallen to less than 11 times forward earnings. This is a ridiculous valuation for a firm that is still growing and operates in an attractive sector within one of the world’s largest economies.
Morningstar’s Chelsey Tam believes JD stock is worth $88 per share. Tam seems JD has strengths including exemplary capital allocation, a strong balance sheet, and an industry-leading position in several key retail verticals. That $88 price target would amount to nearly a triple versus today’s $30 share price.
Corporacion America Airports (CAAP)
Corporacion America Airports (NYSE:CAAP) is one of the world’s largest private airport operators. It controls more than 50 properties in various countries including Argentina, Brazil, and Italy.
CAAP stock collapsed from its initial IPO price of $17 to just $2 during the pandemic. An economic meltdown in Argentina — CAAP’s largest market — didn’t help matters.
However, things are now 0n the upswing; CAAP stock has risen more than fivefold from its pandemic lows as the company has returned to vigorous health. In fact, the company is now generating more profits than it did prior to the pandemic and further growth awaits as the company enters the African market with new airport concessions in Nigeria.
There’s an additional catalyst on the horizon to push CAAP stock higher. That’s because Argentina has its next presidential election this fall. The current government is faring poorly in the polls, and an outsider libertarian candidate, Javier Milei has the lead. Milei previously worked as Corporacion America’s chief economist, and analysts expect his election could give a powerful boost to private sector infrastructure firms, such as his former employer. This makes it one of those emerging markets stocks to buy.
Bancolombia (CIB)
Bancolombia (NYSE:CIB) is the largest banking group in Colombia by market share. Colombia is an attractive market; the top three firms control roughly two-thirds of the market. This concentration leads to consistently high-profit margins.
Colombian stocks plunged in 2022 following the surprising election of a left-wing president in that country. That election marked the first time that a socialist has governed the country since it inaugurated its constitution in 1991. Understandably, investors dumped their Colombian equities in fear of the country becoming the next Cuba or Venezuela.
Fortunately, those fears were misplaced. The left-wing government has not made major structural changes to the economy. More recently, it has become bogged down in corruption scandals and seen its coalition in Congress break apart.
All this to say that political risk has receded, and yet Colombian stocks remain at rock bottom prices. Bancolombia, for example, is selling at just 4x forward earnings and is paying a greater than 10% dividend yield. And with the price of oil — Colombia’s top export — surging again, Bancolombia’s earnings and stock price should skyrocket. This makes it one of those emerging market stocks to buy.
On the date of publication, Ian Bezek held a long position in CAAP and CIB stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
