Emerging markets tend to grow faster than developed economies. But picking stocks to benefit from emerging market growth can be a risky business. So, the best approach is to pick companies with exposure to both developed and emerging markets, allowing you to benefit from the best of both worlds.
With this in mind, Santander(LSE: BNC) andVodafone(LSE: VOD) are two perfect picks for this situation. The two companies have a broad and varied exposure to emerging markets, as a well as an established presence within multiple developed markets.
Santander is one of Europes largest banks but the company generates the majority of its gross income within Brazil, South Americas largest economy. Santander is Brazils third largest lender with a 10% share of the countrys loan market. The USA, Mexico, Poland and UK are also keygrowth regions for Santander.
In most of these markets, the volume of loans made by Santander is expanding at a double-digit rate. So, Santander is benefiting from both emerging and developed market growth.
Moreover, management is targeting a mid-teens return on tangible equity a key measure of bank profitability by 2017. In comparison, many of Santanders peers are targeting a RoTE in the low teens over the next few years.
As a result of these profit targets and Santanders exposure to growth markets,City analysts expect the banks earnings per share to expand 15% this year, followed by growth of 13% during 2016.
Further, the bank is currently trading at a forward P/E of 12, which looks cheap compared to analysts growth projections.Unfortunately, Santander cut its dividend payout earlier this year, although the bank still supports a yield of 3.5%. The payout is now covered twice by earnings per share.
While many analysts are concentrating on Vodafones stagnating European sales, the company is surging ahead in developing markets such as India and South Africa.
For example, the company recently agreed to pay $4.2bn to extend its network in India, a market in which Vodafones revenue expanded by 17.7% during the fourth quarter of last year.
The company closed the quarter with 178.7m customers within India thats nearly half of the groups overall customer base. Outside of India, Vodafones African arm, Vodacom, which operates across Southern Africa, reported a 15.6% increase in its active customer base during 2014 to just under 60m users. Vodacoms key markets include South Africa, Tanzania, Angola, Cameroon and Zambia, among others.
Meanwhile, within Europe Vodafone is making progress with its Project Spring programme to revitalise the groups European infrastructure. Vodafones European 4G coverage jumped to 65% during 2014, and further progress is expected over the next year.
All in all, Vodafone is a great play on emerging market growth and a European economic recovery. Whats more, the companys dividend yield of 4.9% is one of the best on the market.
Overall, Santander and Vodafone make the perfect partnership due to their emerging market exposure, projected growth and attractive dividend yields.
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