The Best Growth Opportunity Out There

There is absolutely nothing that produces monster returns like growth. If you can consistently identify stocks with strong growth prospects and buy them at cheap to reasonable prices, you'll make a killing.

Finding the big growth stocks in the biggest growth countries is that much the better. Identifying these stocks is the best growth opportunity out there.   

The biggest growth
As a first step, I looked up the countries with the 10 highest current growth rates in real gross domestic product.

Country

2009 GDP*

2009 Real GDP Growth Rates

Qatar

$101 billion

9.5%

Azerbaijan

$86 billion

9.3%

China

$8.8 trillion

8.7%

Ethiopia

$77 billion

8%

Timor-Leste

$3 billion

7.2%

Lebanon

$54 billion

7%

Uzbekistan

$78 billion

6.7%

Republic of the Congo

$16 billion

6.6%

Uganda

$43 billion

6.6%

 India

$3.6 trillion

6.5%

Source: CIA World Factbook.

*GDP under purchasing power parity.

Before you start looking too hard for the best growth companies in these countries, let me stop you. These aren't necessarily the best countries to invest in.

Let me draw an analogy between these fastest-growing countries and the fastest-growing stocks.

Below is a list of the 10 companies listed on the major U.S. exchanges with the highest one-year sales growth.

Company

Sales

1-Year Sales Growth

Engex

$33,000

38,662%

TransAtlantic Petroleum

$29 million

26,269%

BioDelivery Sciences International

$63 million

23,768%

Neostem

$12 million

13,744%

Vantage Drilling Company

$112 million

12,112%

Ardea Biosciences

$23 million

7,445%

Synta Pharmaceuticals

$144 million

5,416%

Cardiome Pharma

$52 million

3,309%

CEL-SCI

$110,000

3,014%

Cheniere Energy Partners

$417 million

2,679%

Source: Capital IQ, a division of Standard & Poor's.

If you're paying close attention, you'll notice a similarity between the 10 highest-growing countries and the 10 highest-growing stocks. Most of them are tiny (in relative terms). The countries tend to have low total gross domestic products (GDP) and the companies tend to have low total sales figures. Their high growth rates are made possible because they're working off small bases.

As any seasoned small-cap investor knows, though, this high growth possibility comes at a price -- volatility. And arguably more uncertainty. These are not the biggest growth opportunities out there.

The flip side
For more insight, let's flip this around. Instead of the biggest growers, let's take a look at the biggest of the big and see how their growth looks off their massive bases.

This time, let's start with the company view. This is a list of the largest companies traded on major U.S. exchanges.

Company

Recent Market Capitalization

Sales

1-Year Sales Growth

ExxonMobil (NYSE: XOM  )

$303 billion

$301 billion

(21%)

PetroChina

$284 billion

$169 billion

16%

Microsoft (Nasdaq: MSFT  )

$253 billion

$60 billion

(3%)

Apple

$233 billion

$51 billion

24%

Wal-Mart (NYSE: WMT  )

$197 billion

$408 billion

1%

China Mobile

$195 billion

$66 billion

10%

General Electric

$192 billion

$155 billion

(13%)

Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  )

$191 billion

$112 billion

4%

BHP Billiton

$191 billion

$45 billion

(29%)

Procter & Gamble

$180 billion

$80 billion

1%

Source: Capital IQ, a division of Standard & Poor's.

Because of the economy and a decrease in commodity prices from the previous year, you're seeing some negative growth rates. However, in a normal year, you'd see low positive growth rates. This is the flip side of the big growers we just looked at. These companies are too big to grow by leaps and bounds. On the other hand, they're less volatile and some would argue more predictable.  

There are great companies on this list. I have bought and still hold Berkshire Hathaway, Microsoft, and ExxonMobil, while Wal-Mart looks like a decent play at just 12 times next year's earnings. But these are the types of companies you look to for stability, not outrageous growth.

Back to the countries
All right, one more table before we can bring this all together. This one shows the 10 largest countries by GDP along with their per-capita GDP and growth rates.

Country

2009 GDP*

2009 GDP -- Per Capita

2009 Real GDP Growth Rates

United States

$14.3 trillion

$46,400

(2.4%)

China

$8.8 trillion

$6,600

8.7%

Japan

$4.1 trillion

$32,600

(5.3%)

 India

$3.6 trillion

$3,100

6.5%

Germany

$2.8 trillion

$34,100

(5%)

United Kingdom

$2.1 trillion

$35,200

(4.8%)

Russia

$2.1 trillion

$15,100

(7.9%)

France

$2.1 trillion

$32,800

(2.2%)

Brazil

$2.0 trillion

$10,200

(0.2%)

Italy

$1.8 trillion

$30,300

(4.8%)

Source: CIA World Factbook.

*GDP under purchasing power parity.

Much like the large U.S.-listed companies, the economic growth of the largest countries was hurt by the financial crisis. And just like the large companies, under normal circumstances, we'd see low positive growth.

All these tables ... explained!
I show you all this data to make two related points about both companies and the countries they operate in. To recap:

(1) Smaller entities can post huge growth numbers, but that growth is off smaller bases.

(2) Larger entities simply can't grow as fast, but they tend to be less volatile and arguably more predictable.

In either the case of a company or a country, there's a happy medium where minimum size meets heady growth. This is why you hear so much about China and India in the financial press.

If you scroll back up, you'll notice that China has the second-biggest economy and is the third-biggest grower. India's not far behind. It's the fourth-biggest economy and is the 10th-biggest grower. And for better (room to grow) or worse (low internal demand for products), they're working off of low per-capita GDPs.

But just as analyzing a company is more complicated than just looking at a couple metrics, figuring out a country's prospects is more than just comparing size and growth. How much economic freedom is there? How much transparency? Are foreign investors treated fairly? Is corruption rampant? What about civil unrest? Outright war? Sovereign debt issues? Has the market already priced in the growth?

Partially because of all this uncertainty, savvy investing in growth countries is the biggest growth opportunity out there.

Your options for taking advantage
There are two options for investing in these high-growth countries. You can buy emerging markets index funds or ETFs (Vanguard has some excellent low-cost options), or you can try to beat the indexes by doing your due diligence and picking individual stocks within these countries.

If you're interested in the latter, let me share a couple recommendations from our Motley Fool Global Gains analysts. If you're looking in China, they've recommended infrastructure play Guangshen Railway (NYSE: GSH  ) . In India, they've recommended Dr. Reddy's Laboratories (NYSE: RDY  ) , a low-cost generic drugs manufacturer.

Our Global Gains team travels the globe to visit potential recommendations and get on-the-ground knowledge. Their latest scouting trip was to Greece and they've spent a good deal of time in both China and India. You can access all their travel reports and stock recommendations with a free 30-day guest membership. Just click here to start.

Anand Chokkavelu owns shares of Exxon, Microsoft, and Berkshire Hathaway. Guangshen Railway and Dr. Reddy's Laboratories are Global Gains recommendations. Berkshire Hathaway, Microsoft, and Wal-Mart Stores are Inside Value recommendations. Berkshire Hathaway and Apple are Stock Advisor choices. Procter & Gamble is an Income Investor selection. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Berkshire Hathaway, China Mobile, Microsoft, and Procter & Gamble and has a disclosure policy.


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