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The Secret to Making Triple Digits Once Emerging Markets Hit Bottom

By Larsen Kusick, analyst, Phase 1 Investor
Monday, October 10, 2011

Last week, my colleague Matt Badiali showed readers his "shopping list" of resource companies with the best assets in the world.
 
The resource sector isn't the only area in a downtrend right now. Brazil's Bovespa, China's Hang Seng, and India's Sensex are all more than 25% below their highs. (U.S. stocks are down about 15%, as measured by the S&P 500.)
 
Emerging market stocks are likely heading even lower. But right now is a good time to start putting together our own shopping list of "trophies." Buying dominant companies in undeveloped countries following a bear market can be hugely profitable...
 
Take Baidu for example. Baidu is China's homegrown version of Internet search giant Google. During the worst of the 2008 financial crisis, shares of Baidu were down more than 70% from their highs. Over the next two years, the stock soared more than 1,000%.
 
"Emerging markets" are countries whose economies are still catching up to the U.S. and Europe. That means there's still a lot of growth ahead for even basic businesses like telecommunications, construction, and transportation.
 
Here's the secret to making triple-digit gains in these emerging markets: You didn't have to "catch the bottom" to make a ton of money. All you needed to do was wait for a new uptrend before hitching along for the ride. Investors who bought Baidu six months after the bottom still made 200% or more over the next year or so. And they were taking a lot less risk with their money.
 
To lower your risk even further, you can stick with the biggest, best companies. They'll often be more volatile than their U.S. counterparts. But they generate lots of cash and dominate their markets.
 
Below are some of my favorite "trophy" emerging market companies:
 
Company
Ticker
Market Cap (billions)
% Below Recent High
Description
America Movil
AMX
$85.0
27%
Latin America's biggest telecom. Based in Mexico
China Unicom
CHU
$47.0
11%
One of China's three giant telecom companies
Telkom Indonesia
TLK
$16.5
22%
Indonesia's biggest telecom company
Tata Motors
TTM
$10.0
58%
Biggest carmaker in India
Mercado-libre
MELI
$2.5
39%
Latin America's eBay. Based in Argentina
Gafisa
GFA
$1.3
67%
Huge Brazilian homebuilder
Gran Tierra
GTE
$1.3
49%
Canada-based oil producer working in South America
 
Keep in mind that global stock markets are still in a strong downtrend. That means it's safer to stay on the sidelines for now. No one knows how far these names could drop.
 
The safer bet is to watch these high-quality companies and wait for the uptrend to start. They'll be plenty of upside left... and much less risk.
 
Be patient. Every new bull market produces dozens or even hundreds of triple-digit gains for investors. The next one simply hasn't started yet.
 
Good investing,
 
Larsen




Further Reading:

DailyWealth's Steve Sjuggerud agrees that emerging markets are dirt-cheap. Find out what he recommends buying once the uptrend resumes here: Emerging Markets Typically Soar From Current Levels.
 
"When the market finally bottoms out," commodity expert Matt Badiali writes, "these are the companies I'm going to look at first." Find out what resource companies made his shopping list here: The List: What to Buy at the End of the World.

In The Daily Crux
Market Notes
Gold has no competition as this year's top investment... up 15% in 2011, while every other major commodity and stock index is down.
 
"World Dominators" Microsoft, Proctor & Gamble, and Johnson & Johnson are all in positive territory over the past six months.
 
First Solar plummets more than 55% in six months... smaller solar names are down even more.
 
Cigarette companies Lorillard and Reynolds American are sitting at all-time highs while paying fat dividends.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1164.97 +1.8% +0.4%
Oil (USO) 32.04 +0.2% -9.6%
Gold (GLD) 159.18 -0.8% +22.1%
Silver (SLV) 30.23 -3.1% +37.3%
U.S. Dollar 78.93 -0.1% +1.6%
Euro 1.34 +0.7% -3.6%
Volatility (^VIX) 36.20 -0.2% +67.9%
Gold Stocks (^HUI) 525.67 -2.4% +2.1%
10-Year Yield 2.07 +4.0% -13.8%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 115.71 -0.7% +1.8%
Japan (EWJ) 9.38 -0.5% -6.4%
Canada (EWC) 25.75 -1.7% -8.2%
Taiwan (EWT) 12.18 -1.2% -9.2%
S. Africa (EZA) 59.24 -1.0% -9.9%
S. Korea (EWY) 48.49 -0.3% -11.9%
Israel (ISL) 14.07 -0.1% -12.4%
Singapore (EWS) 11.02 -0.6% -15.5%
Lat.America (ILF) 39.78 -2.0% -19.8%
China (FXI) 31.04 -1.3% -27.8%
India (IFN) 23.13 -0.9% -29.4%
Russia (TRF) 14.01 +0.1% -29.8%

Sector ETFs
Symbol Price
Change
52-Wk
Internet (HHH) 77.74 +0.3% +22.8%
Retail (PMR) 19.53 -0.6% +12.2%
Big Tech (QQQQ) 54.07 -0.7% +10.3%
Utilities (XLU) 33.40 +0.4% +9.7%
Consumer Svcs (IYC) 65.78 -0.1% +7.7%
Health Care (IYH) 65.71 -0.3% +5.0%
Big Pharma (PPH) 65.66 +0.5% +4.8%
Software (PSJ) 22.30 -1.1% -0.5%
Media (PBS) 12.13 -1.1% -2.0%
Industrials (IYJ) 56.83 -0.7% -2.2%
Defense (PPA) 16.82 -0.2% -2.3%
Oil Service (OIH) 109.14 -1.9% -2.6%
Semis (PSI) 12.86 +1.1% -3.7%
Transportation (IYT) 78.15 -1.4% -4.0%
Biotech (PBE) 18.89 -2.2% -4.4%
Real Estate (IYR) 49.56 -2.8% -5.0%
Telecom (IYZ) 20.06 -1.7% -5.7%
Water (PHO) 15.47 -2.0% -7.2%
Construction (PKB) 10.50 -0.5% -8.3%
Basic Mat (IYM) 59.18 -1.9% -9.4%
Insurance (PIC) 13.51 -0.2% -10.4%
Financials (IYF) 44.07 -3.5% -15.7%
Nanotech (PXN) 5.92 -1.0% -35.0%
Alt. Energy (PBW) 5.45 -4.2% -44.3%

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