This Number Could Double in 5 Years

After the spectacular rally in 2009, there aren't nearly as many places to find value in the marketplace. After all, the S&P 500 has rushed ahead 14% over the last year, spurred by the stellar performances of a large variety of stocks.

At first it was just turnaround story or junk stocks that saw huge gains, but now even blue chips like Boeing (NYSE: BA  ) have seen run-ups of over 50%! Not that Boeing isn't a great company, but with Pentagon budget cuts sure to affect the company, and now trading for 36 times earnings -- well above the average for the S&P -- it's a good example of how over-extended the market has become.

With almost every stone turned over and almost every headline read, it seems as if investors aren't quite sure what to expect from 2010 moving forward. After such an emotional roller coaster, it's as if we all need to stop, take a deep breath, and figure out where we can still find value.

So ... now what?
Let me help by asking you three simple questions:

1. What if I told you there was an asset class that some predict will account for 70%-75% of the growth in global output for the foreseeable future?
2. What if I told you that same asset class didn't suffer from the massive indebtedness or extreme leverage that plagues so many other categories of investments?
3. What if I told you that asset class -- reaping gains close to 70% for 2009 and still with enormous growth potential -- accounted for less than 3% of assets held by U.S. fund managers?

If you're anything like me, you'd want to know where to sign up!

Well, the secret is already out, so I'll go ahead and tell you which asset class I'm talking about. In fact, you may have guessed it already: emerging-market stocks.

It's probably pretty hard to believe that after all the hype emerging markets have received, such a small number of us actually own their stocks. Most of us missed out on the types of returns generated by the Vanguard Emerging Markets ETF or the iShares MSCI Emerging Market ETF, which both performed spectacularly during 2009. In such an over-valued segment, you'd figure that every fund manager in the states had his or her hands all over emerging markets.

But it's true: Less than 3% of assets invested by U.S. fund managers are in emerging markets. And that's good news for us right now.

Some experts say the number of investors in emerging markets could possibly double over the next five years. Like I said, the secret is already out, and that means twice as many investors could be combing the marketplace looking for the next dynamite company -- a stock like Ctrip.com that's returned a whopping 500% over the past five years. But since it's always better to beat the crowd in investing, you should get into emerging markets sooner rather than later.

Is it already too late?
It wouldn't be strange to think that you're already the last one to the party, but that's the worst assumption you could make. Take a look at how the following countries' stock markets have performed over the past two years.

Country	2008, % Change From Previous Year	2009, % Change From Previous Year
Brazil	(55%)	142%
India	(62%)	88%
China	(68%)	125%
Indonesia	(57%)	114%
Mexico	(40%)	56%

What you should notice is that although these countries have performed extraordinarily well in 2009, most of them still haven't made up their prior losses. Everyone assumes that because emerging markets have rebounded more strongly than we could have imagined, that there are barely any deals left. But assuming that it's too late is a huge miscalculation -- you just have to know where to look to find the best bargains.

Emerging markets: the second time around
So basically you've got two options. You can ignore emerging markets altogether and miss out on decades of extraordinary growth, or you can take advantage of the massive amount of information out there to buy stocks that weren't snapped up the first time around. In addition, the recent debt crisis in Europe and the political uncertainty everywhere from Venezuela to the UK has helped cause a tumble in the marketplace, bringing down even the best of stocks.

Now is a great time to get in on emerging markets -- the second time around – when some of them have been beaten down for no apparent reason. Check out these stocks that have seen pretty drastic price decreases but that are still trading at reasonable rates:

Company	Country	1-Month Price Decrease	Price-to-Earnings Ratio
Grupo Casa Saba SAB (NYSE: SAB  )	Mexico	(38%)	5.4
Universal Travel Group (NYSE: UTA  )	China	(30%)	8.2
American Oriental Bioengineering (NYSE: AOB  )	China	(19%)	5.1
Patni Computer Systems (NYSE: PTI  )	India	(13%)	10.2
Sohu.com (Nasdaq: SOHU  )	China	(7%)	12.9

Each of these companies have fantastic emerging market exposure, have been battered in the last 30 days, and are still trading pretty cheap considering how hot emerging markets have been.

In fact, three out of the last six stocks I've purchased have been from developing countries. One of them, Guangshen Railway (NYSE: GSH  ) , is a selection of the Global Gains team. Guangshen operates more than 350 locomotives in the most populous province in China, Guangdong. Although passenger revenues have been up, the company's freight volume has decreased -- a trend that we don't see continuing for much longer. Guangshen helps to link together northern and southern China, and as soon as business picks up, this stock should see some nice growth. Currently trading at only 12 times earnings, it's a great time to pick up a solid company at a super cheap price.

I'm confident that developing countries are the place to be for the long term, and that purchasing them now not only gives you great growth potential, but also helps to diversify your portfolio with international exposure.

Our Global Gains team is about to embark on their annual trip to China where they meet with management, tour facilities, and get all the info they need to make some stellar recommendations. If you're interested in hearing their thoughts from the field, just put your email in the box below.