3 Emerging-Market Growth Opportunities for Your Portfolio

MercadoLibre, Melco Crown, and Baidu are three emerging-market companies positioned for growth in the long-term.

Jan 11, 2014 at 7:30AM

Investing in emerging markets usually means having to accept higher risks and uncertainties than in developed countries. However, some emerging-market companies can provide exceptional long-term growth opportunities for your portfolio. MercadoLibre (NASDAQ:MELI), Melco Crown (NASDAQ:MPEL), and Baidu (NASDAQ:BIDU) are strongly positioned for growth for years to come.

Investing in a free market
MercadoLibre means "free market" in Spanish, but the company is better known among investors as "the eBay of Latin America." There are valid reasons for this -- with nearly 18% ownership, eBay is a major shareholder in MercadoLibre, and both companies have similar business models.

In addition to being the leading e-commerce platform in Latin America, MercadoPago does for MercadoLibre what PayPal does for eBay: It is a payment method that has been expanding beyond the platform and growing as a stand-alone business on its own merits. Just like eBay, MercadoLibre has been growing into other areas, like advertising, classifieds, and technological solutions for its clients.

The company has produced outstanding growth for investors over the years; sales have increased at 34.4% annually through the last five years, while earnings have grown at an even faster 59.9% per year through that period. MercadoLibre continued performing strongly last quarter: Revenues in local currencies grew by 45%, and sales in U.S. dollars increased by 27% during the third quarter of 2013.

On the other hand, economic risks could present serious headwinds for MercadoLibre in the medium term, especially when it comes to Argentina and Venezuela, which represent 27% and 19% of revenue, respectively. Both countries are going through serious economic uncertainties, including capital control regimens, currency devaluations and rampant inflation. This could have a material negative impact on the company's financial figures when translated to U.S. dollars.

This casino is no gamble
Melco Crown is one of only six companies granted concessions or sub-concessions to operate casinos in Macau, the only region in China with legalized gambling. Macau has been booming recently, and, judging from recent statistics, there is no slowdown in sight: According to Macau's Gaming Inspection and Coordination Bureau, gaming revenues for the companies operating in the region increased by 18.6% to $45.2 billion in 2013.

The company has benefited enormously from growing gaming demand in Macau. Sales have risen by more than 45% annually in the last three years, and numbers for the last quarter remain remarkably strong, with a 24% increase in revenue during the third quarter of 2013.

Competition remains under control due to the limited amount of land available to build new properties and government reluctance to issue gaming licenses because of social and political considerations. Melco Crown is also expanding into the Philippines and exploring opportunities in Japan, so growth prospects are looking quite strong for the company in the medium term.

Investing for growth in China
Baidu is the leading Chinese language Internet search provider. The company makes most of its sales by providing online advertising through an auction-based pay-for-performance service mostly targeted to small and medium-size businesses. Baidu is also performing strongly in mobile and investing heavily in powerful trends like video, maps, and travel services, among others.

China is a risky country for investors, and the Internet sector is particularly exposed to regulatory uncertainties, technological change, and a dynamic competitive landscape. But there is no denying that Baidu is capitalizing its opportunities and delivering extraordinary growth rates for shareholders.

Revenues have increased 66.5% annually through the last five years, and the company reported a big jump of 42.3% in sales for the third quarter of 2013. Earnings per share were up by only 1.3% during the quarter because of big spending in several growth areas, though.  

Considering the huge opportunities the company has ahead of it in the coming years, Baidu is doing the right thing by prioritizing growth and expansion at the expense of short-term profit margins -- even if that can be a source of added uncertainty for investors in the company.

Bottom line
Investing in emerging markets is not for the faint of heart; these companies are relatively more obscure and harder to analyze than well-known U.S. businesses. Besides, political, regulatory, and economic uncertainties tend to be considerably higher in those countries. However, exceptional growth opportunities can more than compensate for risks when you invest in the right names.

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Fool contributor Andrés Cardenal has no position in any stocks mentioned. The Motley Fool recommends Baidu, eBay, and MercadoLibre. The Motley Fool owns shares of Baidu, eBay, and MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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