Emerging markets and economies form an essential pillar for worldwide development and growth and have been growing rapidly in recent times with solid policies and well-planned financial strategies.
So, it could be ideal to invest in quality emerging market stocks Taiwan Semiconductor Manufacturing Company Limited (TSM), Alibaba Group Holding Limited (BABA), and Silicon Motion Technology Corporation (SIMO) for better exposure.
With revolutionary growth, emerging markets are creating their distinct place worldwide. According to a banking trade group report, major emerging economies, including China, India, Russia, and Mexico, are expected to see a rise in net capital inflows this year by nearly a third to $903 billion, though the majority of it is dependent on global growth holding up.
The net increase of 32% is expected to be prominently influenced by a strong foreign direct investment recovery and cash directed at equity portfolio countries across emerging markets.
Further, the role of large emerging markets is forecasted to widen in powering global economic growth in the future, driven by demographic shifts and a growing consumer class. Economies like Guyana, Mozambique, and Rwanda are expected to be the fastest-growing emerging economies, based on real GDP CAGR of 19.8%, 7.9%, and 7.2% during the forecast period (2024-2029).
Moreover, as per Morgan Stanley Economists, global economic growth of 3.1% is expected in 2024 and 2025, with steady growth and slowing inflation. Also, anticipated interest rate cuts from June by the European Central Bank and by the U.S. Federal Reserve in September will have a positive impact. Emerging markets and developing economies are expected to grow at 4.2% in both 2024 and 2025.
Given the industry's bright prospects, let's delve into the fundamentals of the three best emerging market stocks: TSM, BABA, and SIMO.
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices internationally. It provides a range of wafer fabrication processes and offers customer and engineering support services.
On June 7, TSM announced its net revenue for May 2024, which came in at, on a consolidated basis, approximately NT$229.62 billion ($7.10 billion), an increase of 30.1% compared to May 2023. Also, revenue for January through May 2024 totaled NT$1.06 trillion ($32.71 billion), a growth of 27% compared to the same period in 2023.
On April 24, TSM launched its newest semiconductor process, advanced packaging, and 3D IC technologies for powering the next generation of AI innovations with silicon leadership. It introduced 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.
TSM's net revenue increased 16.5% year-over-year to $18.87 billion for the first quarter that ended March 31, 2024. Its gross profit grew 9.8% from the year-ago value to $10.01 billion. The company's income from operations of $7.93 billion indicates growth of 7.7% from the prior year's quarter.
In addition, the company's net income and EPS of $7.17 billion and $0.28 indicate growth of 8.8% and 8.9% year-over-year, respectively.
Street expects TSM's revenue for the second quarter (ending June 2024) to increase 29.4% year-over-year to $19.98 billion, and its EPS is expected to grow 20.7% year-over-year to $1.38 for the same quarter. Moreover, the company has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
Over the past six months, TSM's stock has climbed 69.3% and 61.9% over the past year to close the last trading session at $172.91.
TSM's POWR Ratings reflect its robust outlook. 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.
TSM has an A grade for Sentiment, Quality, and Momentum. It is ranked #10 out of 92 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 Value, Stability, and Growth. Get all TSM ratings here.
Alibaba Group Holding Limited (BABA)
Based in Hangzhou, China, BABA offers technology infrastructure and marketing reach to help merchants, brands, retailers, and other businesses to engage with their customers internationally. It operates in seven segments: China Commerce; International Commerce; Local Consumer Services; Cainiao; Cloud; Digital Media and Entertainment; and Innovation Initiatives and Others.
On June 7, BABA's entered into a collaboration with UEFA EURO 2024™, making it the official B2B E-commerce partner of UEFA EURO 2024™ in the U.S. and China. The partnership aligns within the existing agreement and will create various opportunities for small and medium-sized enterprises on Alibaba.com to leverage the increased demand around the tournament.
On June 6, BABA launched Alibaba Guaranteed, to help simplify global sourcing and provide a more flexible and reliable supply chain for small and medium-sized enterprises in the U.S. and beyond. Alibaba Guaranteed allows buyers to source with added confidence and they can also take advantage of after-sales services.
Alibaba Guaranteed marked a significant step for SMEs and global sourcing by redefining the fulfillment standard of B2B cross-border trade.
For the fourth quarter, which ended March 31, 2024, BABA's revenue increased by 6.6% year-over-year to $30.73 billion, and its income from operations was $2.04 billion for the quarter. The company's non-GAAP net income and EPS came in at $3.38 billion and $0.18 for the quarter, respectively.
Furthermore, the company's adjusted EBITDA and free cash flow were $4.27 billion and $2.13 billion for the quarter, respectively.
Analysts expect BABA's revenue for the fiscal year (ending March 2026) to increase 7.8% year-over-year to $151.80 billion. Its EPS for the same period is expected to grow 12.8% year-over-year to $9.22. Furthermore, BABA has surpassed the consensus revenue estimates in three of the trailing four quarters.
Shares of BABA have surged 6.8% over the past six months to close the last trading session at $75.68.
BABA's bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has a B grade for Momentum, and Quality. BABA is ranked #12 of 40 stocks in the China industry.
Click here to access additional ratings of BABA for Growth, Value, Sentiment, and Stability.
Silicon Motion Technology Corporation (SIMO)
Headquartered in Hong Kong, SIMO designs, develops, and markets NAND flash controllers for solid-state storage devices internationally. The company provides controllers for computing-grade solid state drives (SSDs), which are used in PCs and other client devices
On June 3, SIMO launched the SM770 USB display interface SoC for USB docking stations to simplify connectivity for multiple 4K Ultra-High Definition Displays, with low latency and low power consumption. It supports Triple 4K (3840 x 2160) @60Hz or 2K@144Hz, uses 2nd generation CAT technology, USB 3.2 Gen2, and support displays over PCI-E, USB, Ethernet or Wireless.
The new advancement enhances multi-screen display performance by minimizing latency and optimizing overall system efficiency and also enables the creation of high-value USB display docking stations and display adapters needed for growing demands of professional environments.
On May 30, SIMO launched the SM2322, the industry's fastest single-chip high-performance, low-power, and cost-effective solution for external portable SSDs, which supports up to 8TB of storage and offers data transfer rates of 20Gbps to store and access large amounts of content seamlessly from AI smartphones, high-performance multimedia devices, and game consoles.
The new SM2322 align well with SIMO's portfolio, introducing enhancements to support higher speed USB3.2 specifications and offer greater capacity, inclining with the needs of the AI era for large-scale digital media content storage and access.
During the first quarter that ended March 31, 2024, SIMO's net sales increased 52.6% year-over-year to $189.31 million. Its non-GAAP gross profit grew 62.3% from the year-ago value to $85.19 million. The company's non-GAAP operating profit of $22.65 million indicates growth of 75.6% year-over-year.
In addition, the company's non-GAAP net income and earnings per ADS came in at $21.59 million and $0.64, up 93.4% and 93.9% from the prior year's quarter.
As per the business outlook for second quarter of 2024, SIMO expects its revenue to range between $199 million and $208 million, up 5% to 10% from the prior quarter, and anticipated 42% to 48% growth year-over-year.
Also, for the full year 2024, the company's revenue is expected to be $800 million to $830 million, up 25% to 30% year-over-year.
Street expects SIMO's revenue and EPS for the second quarter (ending June 2024) to grow 45.3% and 139.3% year-over-year to $203.88 million and $0.91, respectively. Furthermore, the company surpassed the consensus revenue estimates in all four trailing quarters, which is remarkable.
Shares of SIMO have gained 36.9% over the past six months and 15.5% over the past year to close the last trading session at $81.90.
SIMO's strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
SIMO has a B grade for Value, Sentiment, and Growth. It is ranked #6 among 92 stocks in the Semiconductor & Wireless Chip industry.
To access SIMO's ratings for Quality, Stability, and Momentum, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
TSM shares were trading at $173.11 per share on Friday afternoon, up $0.20 (+0.12%). Year-to-date, TSM has gained 67.40%, versus a 14.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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