Weakness in the Chinese economy and the declining renminbi has put the spotlight on emerging markets at the start of the new year. After the renminbi fell 1.3% against the dollar last week, the Financial Times reports this may also put pressure on other EM currencies.
In addition, in the first week of the year, U.S. ETFs that invest in emerging markets saw their largest redemptions since November, with investors pulling the most money from Taiwan and India. The Taiwan dollar has weakened 1.5% against the U.S. dollar while three-month volatility was 7.8%. The rupee declined 0.7% against the dollar, and three-month volatility is 6.8%.
Using the All-in-One Screener, the following three EM stocks may be worthy of further research for investors who are willing to take the risks associated with developing markets.
For this screen, the minimum financial strength and profitability rating was set at 8, while business predictability was set for at least 4 stars, returning 42 stocks.
Vitasoy International Holdings (HKSE:00345, Financial)
Vitasoy is a Hong Kong-based beverage and food producer whose products include Vitasoy-branded soy milk, Nasoya packaged tofu and other tea and milk beverages.
The stock has surged 46% over the past year and is trading expensively at 45x earnings. Due to its high valuation, Vitasoy may be one to keep an eye on and buy if the stock lowers.
GuruFocus rates Vitasoy’s business predictability as 4 out of 5 stars. Over the past 10 years, revenue per share has grown by an average annual rate of 8.4% per year. EPS without NRI has grown by an average of 9.5% per year over the same time frame.
Vitasoy pays a dividend yield of 1.57% with a 56% payout ratio. In the six months ended Sept. 30, 2015, the company reported strong business in mainland China, Singapore and Hong Kong while results in Australia were weakened when converted to Hong Kong dollar terms. Manufacturing issues in North America also caused a net loss in the region.
NICE-Systems Ltd. (XTAE:NICE, Financial)
NICE-Systems is an Israeli company that provides software solutions for big data. The stock has risen 15% over the past year and, as of Monday morning, trades at 13x earnings. GuruFocus rates the business predictability as 4.5 out of 5 stars.
Revenue per share has grown by an average of 9.3% per year over the past 10 years while EPS grew by 8.5% per year.
NICE’s operating margin of 11% as of FY 2014 is also at the highest level over the past 15 years. The dividend yield is 1.15% and has a payout ratio of 28%.
Bharat Electronics Ltd. (BOM:500049, Financial)
Bharat Electronics manufactures products primarily for defense services such as army communication systems, land-based radars and weapon systems. The stock is up 21% over the past year and is trading at 26x earnings.
EPS has grown consistently over time and increased from 39.64 rupees in 2014 to 49.88 rupees in FY 2015 ended March.
Bharat’s operating margin increased from about 18% in 2013 and 2014 to 21% in 2015. The company has a trailing dividend yield of 0.75%, with a 16% payout ratio.
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