Wednesday, June 26, 2013

Invest in Emerging Markets Without Leaving the U.S.

Between 2006 and 2012, the U.S. projected GDP growth was 1.1%, according to The Conference Board. Emerging and developing economies growth came in at 6.5%, with the world average at 3.5%. While the U.S. has been a leader in the past for economic development, U.S. investors should not ignore the fact that other markets will experience greater growth going forward. One way investors can invest in emerging and developing markets without the difficulty of having to research foreign stocks is by buying U.S. stocks with a strong international presence.

Stable and familiar

Visa (NYSE: V) is an international payment-processing company that is deriving revenue from more than 200 countries and territories. Visa is a very recognizable brand in the U.S. that has a long history and track record of revenue growth and stock performance. By 2015, Visa has a goal to earn 50% or more of its revenue from international markets. From 2011 to 2012, Visa's international revenue grew 16%. Even with a 16% growth rate year-over year, there is still a significant opportunity for even higher growth rates.

According to Visa, in 2012, 80% of transactions in Russia were done with cash. One of Visa's strategies is to increase the amount of merchants that accept Visa. In 2012, Visa launched a relationship with Russia's largest grocery chain that has over 5,000 stores. With this new relationship, Visa is now accepted at the four largest retail-food chains in the country. With the added convenience and benefits of using credit and debit cards, Visa should not disappoint in international revenue growth. This will enable U.S. investors the ability to invest in a stable and familiar stock with a strong international presence.

Room for growth

Colgate-Palmolive (NYSE: CL) is a consumer products stock that is a well-known U.S. company, with revenue coming from 223 different countries and territories. It operates in two different segments: pet nutrition and oral, home care and personal. Colgate ranks number two on the Kantar Brand Footprint chart, second to Coca-Cola . Although it ranks second, it has the highest penetration rate. In 2012 approximately 80% of its net sales were generate outside the U.S. and over 50% of its net sales came from emerging markets.

Although Colgate-Palmolive already has 80% of its net sales from outside the U.S., there is still room for strong growth. For year-end 2012, its sales growth in North America was 3.5%, in Latin America 10.5% and Greater Asia/Africa 11% for is oral, personal and home-care segments. Even with including growth in Mexico, its North American growth rate is still around three time less than Asia/Africa and Latin America. As the world population grows and desires a higher quality of life, something as simple as toothpaste will see strong demand.

Most recognized brand
Coca-Cola (NYSE: KO) is consistently at the top of the charts for one of the world's most recognized brands. Its portfolio contains more than 3,500 non-alcoholic drinks that are served in over 200 different companies with the use of 250 Coca-Cola bottlers across the world. When you think of Coke, you might have a narrow view of the beverage company thinking it has only one brand -- Coca-Cola. In fact, the company owns and operates several popular brands such as Sprite, Minute Maid, Power Ade, DaSani, Fanta, Vitamin Water, Smart Water and Simply Orange along with its various Coke products.

Coca-Cola understands the importance of investing in international markets. In 2012, together with its bottling partners, Coca-Cola announced a $30 billion investment over the next five years to support the anticipated growth worldwide. It is investing in manufacturing facilities, infrastructure and cold-drink distribution equipment. This is an addition to a $1.3 billion investment in Chile, $3 billion in India, $300 million in Vietnam and $4 billion in China over the next few years. Another highlight for 2012 was delivering Coca-Cola products to Myanmar for the first time in 60 years.
For the full-year 2012, Coca-Cola had 11% growth in volume in Eurasia and Africa, 5% growth in Latin America, and 5% growth in the Pacific compared to a 2% growth in volume for North America. One interesting side note, Mexico ranked the highest for consumption per person in 2012 with 745 ounces per year. The U.S. had 401 ounces per person.

Another benefit Coca-Cola and Colgate-Palmolive have to offer is a reliable dividend. The current yield for Coca-Cola is 2.7% and Colgate-Palmolive is 2.2%. Both companies have paid a reliable, consistent dividend with regular increases.

Of the three companies, Visa and Coca-Cola appear to have a better growth opportunity for the future. An investor looking for income or growth and income would probably prefer Coca-Cola whereas an investor looking for growth only would most likely go with Visa. All three of these stocks provide an investor a way to participate in emerging markets without having to invest in an emerging market company that is unproven.