Emerging markets are like the vibrant, fast-moving pulse of the global economy, offering investors exciting opportunities that established markets can't always match. The five countries that comprise the “BRICS” acronym, Brazil, Russia, India, China, and South Africa, are proliferating, and their potential is hard to ignore.
Therefore, investing in emerging markets through quality stocks, such as Semiconductor Manufacturing Company Limited (TSM), Alibaba Group Holding Limited (BABA), and Infosys Limited (INFY), could be a strategic way to diversify your portfolio.
The BRICS bloc is on a trajectory to see its GDP soar past $34 trillion in just four years, showcasing its growing strength and economic clout. For 2024, expectations are high, with several BRICS nations expected to outperform the U.S.
According to the IMF’s latest world outlook, global GDP is projected to rise 3.2% this year. However, the U.S. is expected to lag slightly behind at 2.7%, a reflection of its ongoing battle with inflation from 2023. In contrast, emerging nations like India, China, the UAE, Iran, Ethiopia, and Russia are poised to meet or even surpass this growth forecast. With a predicted 3% GDP growth, Egypt also stands out, exceeding the U.S. rate.
Moreover, the iShares MSCI Emerging Markets ETF (EEM) surged 5% in the second quarter, lifting year-to-date returns to 7.5%. Sectors like information technology, communication services, utilities, and consumer discretionary have driven this performance, while healthcare, consumer staples, and materials lagged.
In addition, the BRICS bloc’s growing influence and its push towards de-dollarization (reducing global reliance on the U.S. dollar) could reshape the global financial landscape. As more countries explore alternatives to the dollar, investing in emerging markets could be beneficial.
With that in mind, let’s delve deeper into the fundamental aspects of the above-mentioned stocks in detail:
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices internationally. The company provides a range of wafer fabrication processes and offers customer and engineering support services.
On April 24, TSM unveiled its newest semiconductor process, advanced packaging, and 3D IC technologies for powering the next generation of AI innovations with silicon leadership. The company launched the TSMC A16TM technology, consisting of leading nano-sheet transistors with innovative backside power rail solutions.
It also introduced its System-on-Wafer (TSMC-SoW™) technology, an innovative solution to bring revolutionary performance to the wafer level.
In terms of the trailing-12-month levered FCF margin, TSM’s 25.79% is 147.3% higher than the 10.43% industry average. Likewise, its trailing-12-month net income margin and ROCE of 37.85% and 26.45% compare favorably to the industry averages of 3.58% and 2.76%, respectively.
TSM’s net revenue increased 40.1% year-over-year to NT$673.51 billion ($20.82 billion) for the second quarter that ended June 30, 2024. Its gross profit grew 37.6% from the year-ago value to NT$358.13 billion ($11.07 billion). The company’s income from operations of NT$286.56 billion ($8.86 billion) indicates growth of 41.9% from the prior year’s quarter.
In addition, the company’s net income and EPS of NT$247.85 billion ($7.66 billion) and NT$9.56 reflect an increase of 36.3% year-over-year.
The consensus revenue estimate of $22.97 billion for the fiscal third quarter (ending September 2024) represents a 35.9% increase year-over-year. The consensus EPS estimate of $1.78 for the current quarter indicates a 37.6% improvement year-over-year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
TSM’s shares have gained 82.4% over the past nine months and 77.8% over the past year to close the last trading session at $167.12.
TSM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Sentiment and Quality and a B for Momentum. TSM is ranked #7 out of 90 stocks in the Semiconductor & Wireless Chip industry.
In addition to the POWR Ratings we’ve stated above, we also have TSM’s other ratings for Growth, Value, and Stability. Get all TSM ratings here.
Alibaba Group Holding Limited (BABA)
Based in Hangzhou, People’s Republic of China, BABA provides technology infrastructure and marketing reach to help merchants, brands, retailers, and other businesses engage internationally with their users and customers. It operates through seven segments: China Commerce; International Commerce growth; Local Consumer Services; Cainiao; Cloud; Digital Media and Entertainment; Innovation Initiatives; and Others.
On July 23, BABA reported that its generative AI toolkit, “Aidge,” is now used by 500,000 merchants and has seen API calls double every two months. The AI tools have enhanced over 100 million product listings, boosting operational efficiency and market reach across e-commerce platforms.
In terms of the trailing-12-month EBIT margin, BABA’s 14.74% is 88.4% higher than the 7.82% industry average. Its 13.04% trailing-12-month levered FCF margin is 136.7% higher than the 5.51% industry average. Likewise, the stock’s 8.50% trailing-12-month net income margin is 84.1% higher than the 4.62% industry average.
For the fourth quarter that ended March 31, 2024, BABA’s revenue increased 6.6% year-over-year to RMB221.87 billion ($30.73 billion), while its income from operations amounted to RMB14.77 billion ($2.05) billion for the quarter.
BABA’s non-GAAP net income and EPS came in at RMB24.42 billion ($3.38 billion) and RMB1.27 for the quarter, respectively. Furthermore, the company’s adjusted EBITDA was RMB30.81 billion ($4.27 billion) for the quarter.
Analysts expect BABA’s revenue for the fiscal year (ending March 2026) to increase 7.9% year-over-year to $153.87 billion. Its EPS for the same period is expected to grow 12.1% year-over-year to $9.44. Furthermore, BABA surpassed the consensus revenue estimates in three of the trailing four quarters.
Over the past six months, the stock has gained 12%, closing the last trading session at $79.99.
BABA’s POWR Ratings reflect a positive outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It also has a B grade for Momentum and Quality. Out of 41 stocks in the B-rated China industry, it is ranked #13. To see BABA’s Growth, Value, Stability, and Sentiment ratings, click here.
Infosys Limited (INFY)
Headquartered in Bengaluru, India, INFY provides consulting, technology, outsourcing, and next-generation digital services in North America, Europe, India, and internationally.
On August 1, INFY announced an expanded strategic collaboration with ServiceNow, Inc. (NOW) to enhance enterprise business transformation through advanced AI-powered solutions. The partnership aims to accelerate ServiceNow implementation for enterprises like First Abu Dhabi Bank (FAB) by 30-40%, ensuring faster time-to-value.
The collaboration also includes offering comprehensive services, including licenses, and deploying INFY’s AI-powered Enterprise Service Management Café (ESM Café). This development underscores the company’s commitment to leveraging advanced AI solutions to drive significant business value for its clients, further solidifying its position in the market.
The stock’s trailing-12-month EBITDA margin of 22.65% is 118.5% higher than the 10.37% industry average. INFY’s 17.18% trailing-12-month net income margin is 379.3% higher than the 3.58% industry average. Likewise, its trailing-12-month ROCE of 33.70% compares to the industry average of 4.89%.
For the fiscal first quarter ended June 30, 2024, INFY’s revenues amounted to $4.71 billion, up 2.1% year-over-year. Its gross profit rose 3.5% over the prior-year quarter to $1.46 billion. The company’s net profit and EPS came at $764 million and $0.18, representing an increase of 5.5% and 5.9% year-over-year, respectively.
As of June 30, 2024, its cash and cash equivalents stood at $1.97 billion, compared to $1.77 billion as of March 31, 2024.
Street expects INFY’s revenue for the second quarter (ending September 2024) to increase 3.8% year-over-year to $4.86 billion, and its EPS is expected to grow 6.3% year-over-year to $0.19 for the same quarter. Moreover, the company has topped the consensus revenue estimates in three of the trailing four quarters, which is promising.
The stock has gained 30.2% over the past nine months and 15.9% year-to-date to close the last trading session at $21.30.
INFY’s stance is apparent in its POWR Ratings. The stock has an A grade for Quality and a B for Stability. It is ranked #2 among nine stocks in the A-rated Outsourcing - Tech Services industry.
Click here to see additional ratings for INFY (Growth, Value, Momentum, and Sentiment).
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TSM shares were trading at $167.84 per share on Monday afternoon, up $0.72 (+0.43%). Year-to-date, TSM has gained 62.31%, versus a 12.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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