South African Stocks Showing Promise

With world markets growing faster than the U.S., investors without international exposure are missing out on huge opportunities by not being globally invested. It used to be you just had to decide between large caps and small caps. Now, as PIMCO co-CEO Mohamed El-Erian told Money magazine, "The typical U.S. investor tends to have about 80% of equities in the U.S. The world of tomorrow suggests a much greater exposure overseas. In general, you should consider holding a third of your equities in the U.S., a third in industrial countries outside the U.S., and a third in emerging markets."

One way to increase your exposure to foreign stocks is to invest in ETFs that track various segments of the foreign market. The iShares MSCI EAFE Index, for example, tracks blue-chip stocks in developed nations while the iShares MSCI Emerging Markets Index offers access to smaller countries.

Yet another way is to invest in individual companies around the world. Now you don't need an expensive international broker to do this. Luckily for U.S. investors, the U.S. markets are attractive enough that companies commonly list their shares on U.S. exchanges to gain access to U.S. investors.

Today, we'll look at a few companies headquartered in South Africa that are listed in the U.S.

Stock

Market Cap

Industry

SABMiller (Pink: SBMRY.PK)

$45.1 billion

Beverages-Beer

DRDGOLD (Nasdaq: DROOY  )

$154 million

Gold

Source: Capital  IQ and Yahoo! Finance

SABMiller
SABMiller went on a $17 billion buying spree in the early 2000s, buying India's Narang Breweries in 2000, the United States' Miller in 2002 from Altria (NYSE: MO  ) (which currently owns 27% of SABMiller), and Colombia's Bavaria in 2005. This spree led SABMiller to where it is today, the second-largest brewer in the world in between Anheuser-Busch InBev (NYSE: BUD  ) and Heineken (Pink: HINKY.PK). According to a recent analyst report from Deutsche Bank, SABMiller has the highest exposure over the next five years of the big three brewers to the fastest-growing beer markets of China and India. The opportunity is huge. In China, for example, the average household drinks just over 30 liters a year, compared with 84 liters in the U.S. and 73 liters in Western Europe. And one of the fastest-growing beer markets is Colombia, where SABMiller has a 98% market share. Trading at 24.3 times earnings, SABMiller certainly isn't cheap, but the company's strong brands and market positions make up for it.

DRDGOLD
Investors in DRDGOLD have been plagued by problems, including the closing of its East Rand Proprietary Mines and the previous placement of its 74 percent owned Blyvoor mine under judicial management in November 2009 because of debt and a large loss, seismic events, increasing energy costs, and a lower rand gold price. South African gold production also fell 6% last year, and miners Gold Fields (NYSE: GFI  ) and Great Basin Gold (NYSE: GBG  ) didn't provide an attractive profile for investors.

Things are looking better now, as DRDGold recently signed an agreement to sell off portions of its East Rand Proprietary Mines to White Water Resources. Blyvoor turned around in judicial management. The mine posted a profit in the first quarter of the year, and its debt has been greatly reduced. Also, the mine's output increased to 315 kg/m versus the previous 272 kg/m, and the price of gold itself improved. DRDGold CEO Niel Pretorius had this to say:

The provisional judicial management of Blyvoor has been a success; the company is able to pay its debts as and when they fall due for payment; it has turned the corner and is, once again, a successful concern.

With these issues behind it, DRDGOLD should be back on track for growth.

Is this a good time to hop on the beer bandwagon, or do gold miners catch your eye? Let us know in the comments box below!

Dan Dzombak does not have a position in any of the stocks mentioned in this article. SABMiller is a Motley Fool Global Gains pick. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 22, 2010, at 9:11 AM, Fool wrote:

    Dan - thanks for the article. Wanted to ask if you had an opinion about a third South African stock: Net1 UEPS?

  • Report this Comment On July 23, 2010, at 12:11 PM, TimoDOZ wrote:

    There is no politically correct way to view South Africa and the longer term outlook. We can however examine the condition of Zimbabwe after the past 30 years. After looting the western civilizations of their investments in that resource rich quasi-nation, Zimbabwe has under taken approachment to China. As part of their ongoing agreements for the Chinese to invest in and exploit the now mostly idle mining enterprises in Zimbabwe the chinese have been allowed to introduce military troops to Zimbabwe to protect their interests. In thirty years the rich mineral deposits of this country have been reduced to a trickle from over 200 million tons /year.

    Your touting of the S/A situation includes mention of GBG. GBG is about to ATTEMPT a start up of their investment in the Burnstone minig project. GBG has announced that Eskom the S/A state run

    power company will be finishing the hook up of Burnstoone on Aug 8th. GBG has announced their delayed year end and quarterly financials coincidently for 8/10-11, to advantag this development. The trouble is, is that GBG has got a mine on it's hands ready to operate and no power supply. It would have been an obvious prudent business plan to have the power in place BEFORE the miine was ready to start up in the re-commissioning process.

    AES has recently ben called in to manage and operate the "Kelvin " power plant in S/A . this as a result of the indigenous peoples not having much success in operation, maintenance of existing power resources and building new power.

    AES immediately laid off 75% of the "work force " at Kelvin.

    It is not very likely that the small cap under capitalized Great Bag of Garbage is going to have this power in place as scheduled. The failure willl be met with "err", " we expect", "this delay will give us time to..", excuses by management sa=t their earnings conference call. The Fiasco that could befall GBG at Burnstone and the political uncertainty of S/A make investing in this country a dubious at best investment. Burnstone will probably eventually operate but the way this situation plays out in the next 3 weeks will be a premonition of how things are wonderful in the mind of the politically correct in S/A where as the reality is much more difficult. Some of us await the next major dilution event in Oct to get a toe hold in this company. On the face of it the company and it's guidance look great but then there is the reality of a five year chart and a series of dilutions, financings, debt offerrings and failures that have not discouraged management frrom generously rewarding itself.

    I have an 8 week target of $1.55 on these shares. As I expect disappointments to play out and another dilution event in Oct.

    Today7/23 we can find some comparative Canadian mining stocks like PAL,MEAOF, & KGILF moving incrementally higher on their geography? , as against gold trading flat to down a bit. GBG just languishing, as gold spot knocks off a few bucks.

  • Report this Comment On April 11, 2013, at 9:09 AM, TheInvestmentMan wrote:

    I think there are better places to invest than in home policies. A standard British ISA is only offering an average return of interest of 1%, which in my opinion is due to the downfall of most currencies, and the short life cycle they are achieving.

    So why not invest into something which is going to be required forever, or in an area which is on its way to the top. For example previously it was the BRIC (Brazil, Russia, India, and China) nations which have lived their boom and now at a steady rate.

    Next Continent which is on its way to flourish is Africa, especially the western Nations, such as Ghana to be more precise. A company called Reflex Eco Limited contacted me with an extremely lucrative proposition available. Offering 100% security on invested money, and potential of 11%+ return over 12 months in alternative investments and emerging markets. http://www.reflexecogroup.com/

    The detail behind the proposition was investing into metals such as Gold or silver which are unlikely to depreciate and likely to remain as a commodity forever. Also stating that initial money invested will not be lost (Within reason).

    A group of Chinese organizations previously invested production facilities into western Africa, facilities such as roads and public transport, which has resulted in an improvement in the nation’s economy in general. The potential of this market seems so lucrative large British companies such as Cadburys and Vodaphone have moved operations to western Africa which will support the economy, also being followed by copy cat corporations which is going to pump action into the economy, and therefore keep it active.

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