If we look at the United States, it’s a hub for corporate sector innovation. U.S. equities have some of the best growth stories globally. However, another fact is that the U.S. is a developed economy. It’s unrealistic to expect GDP growth that’s even closer to several emerging economies. Therefore, exposure to global growth stocks is one of the strategies for diversification and value creation.
As a percentage of the total portfolio, I would not hesitate to have at least 25% exposure to emerging markets. I can say with some conviction that over the next 10 years, total returns from emerging economies will be higher than those from developed market economies. Besides emerging market index investing, there are quality growth stories to buy.
This column discusses three global growth stocks worth holding for the long term.
Li Auto (LI)
Li Auto (NASDAQ:LI) is possibly the best EV stock from China at current levels of $35. LI stock can deliver multibagger returns in the next five years. In my view, 5x from current levels seems entirely likely.
It’s worth noting that Li Auto is on a high growth trajectory. For Q3 2023, the Company reported revenue growth of 271.6% on a year-on-year basis to $4.61 billion. The launch of new models and aggressive retail expansion have backed growth.
I like that Li Auto has been able to generate robust cash flows. For Q3, the Company reported a free cash flow of $1.8 billion. The company’s cash buffer has swelled to $12.13 billion with a healthy FCF. This provides high flexibility for continued investment in growth.
It’s also likely that Li Auto will start exploring overseas markets for growth. The Company is targeting the Middle-East for initial expansion. Also, with the commercial launch of Li MEGA early next year, deliveries growth will remain robust.
MakeMyTrip (MMYT)
MakeMyTrip (NASDAQ:MMTY) is another long-term growth story that deserves a place in the global portfolio. MMYT stock has trended higher by 71% for year-to-date. In my view, this is just the beginning of the uptrend.
As an overview, MakeMyTrip is an online travel company with business segments, including air tickets, hotels, travel packages, and bus tickets. It’s estimated that India will add 142 million middle-class households by 2030 to 300 million. With a young population and increasing disposable income, the market for travel and tourism is significant. MakeMyTrip is, therefore, positioned for years of healthy growth.
Improving financial metrics after the pandemic has been encouraging in terms of fundamentals. For the financial year 2020, the Company reported an operating loss of $70 million. For 2023, MakeMyTrip reported its highest-ever adjusted operating profit of $70.3 million. With repeat customers and lower tech costs, margin improvement will be sustained. MakeMyTrip will likely report robust free cash flows in the next five years.
Adecoagro (AGRO)
Adecoagro (NYSE:AGRO) stock looks like another potential multibagger. The Luxembourg-based company is involved in the farming, sugar, ethanol, and land transformation businesses. The company has also diversified into dairy operations besides farming rice and other agricultural products.
From an industry perspective, the global food shortage is a challenge. It also provides an opportunity for agricultural companies to pursue aggressive growth. To put things into perspective, it’s estimated that more than 333 million people globally face acute levels of food insecurity in 2023.
I must mention that the company’s farmland holdings have a valuation of $745 million at the onset. I expect the farmland valuation to swell in the coming years. Further, the farmland asset will continuously generate cash flows.
Adecoagro has also been reporting robust quarterly numbers. For Q3 2023, the Company reported gross sales of $388 million and an adjusted EBITDA margin of 40.7%. Margin expanded by 830 basis points on a year-on-year basis. I expect healthy margins to be sustained with the potential increase in food prices.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
