3 Emerging-Market Growth Opportunities for Your Portfolio

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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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  • Report this Comment On January 12, 2014, at 3:04 PM, PhilipCohen wrote:

    "... with nearly 18% ownership, eBay is a major shareholder in MercadoLibre"

    The ugly reality of eBay Inc.:

    eBay's crooked auctions marketplace ... bit(DOT)ly/11F2eas

    eBay Motors: Auction Fraud Galore … bit(DOT)ly/I2gTEU

    eBay's clunky, unscrupulous "PreyPal" ... bit(DOT)ly/UVXx53

    The ongoing joke of it all ... bit(DOT)ly/YvxFEg

    Fun quotes from the eBay executive suite ... bit(DOT)ly/12xvzyA

    Shill bidding fraud by professional sellers on eBay nominal-start auctions is demonstrably endemic; many of the bidders who bid early and often on such auctions are most likely the sellers' shills, and eBay Inc. is—also demonstrably—the greatest knowing and calculated facilitator of such fraud on consumers that the world is ever likely to know and, doubtless, there will be a trickle down effect of like criminal activity to other eBay operations ...

    The only thing that surprises me about this criminal enterprise is that it has not yet summoned up the gall to convert its auctions wholly to the “private listing” format, or the bidder IDs to “Bidder 1”, “Bidder 2”, “Bidder 3”, …, as they initially were going to do when John Donahoe first introduced the additional layer of anonymity for (shill) bidders in 2008, nor have they, just as surprisingly, yet ceased to publish the details of "completed" listings via which a post-sale analysis for obvious shill bidding fraud can, with some effort, be done ...

    And what does the "smart money" on Wall Street think about eBay Inc? Well, in August 2007, when Bain’s Johnny Ho was already effectively in control of eBay, the share prices of both eBay and Amazon were ~$40; today, eBay is ~$52; Amazon is ~$401 ... Now, seriously, what more can be said, other than ...

    eBay / PayPal / Donahoe: Dead Men Walking ...

    I also have to wonder if Pierre Omidyar has ever thought about just how much more fabulously wealthy he might now have been had he not ok’d the handing over of the control of eBay to the incompetent, destructive, unscrupulous, narcissistic sociopath—Johnny Ho?

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Andrés Cardenal

Andres Cardenal, CFA is a tenacious researcher of the best investment opportunities around the world. Andres is an economist and CFA Charterholder living in Buenos Aires, Argentina. Naturally flavored. Follow me on Twitter for more investment ideas:

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