Kiplinger Today


Exotic Blue Chips

The ranks of the largest and most dynamic businesses in the world are being bolstered by companies in the developing world. Last year, for instance, the Fortune Global 500, a list of the publicly traded firms with the highest revenues, included 35 companies from China, India and Brazil. That's up from 24 companies just two years earlier -- a gain of almost 50%.

By contrast, in 2007 the U.S. and Japan -- far and away the top two contributors to the list -- accounted for 229 of the 500 largest global companies, down from 257 in 2005.

In the past, the main reason to own shares of firms in the developing world was to profit from the growth of the markets in which they were headquartered. After all, developing markets are booming. Last year, emerging Asian stock markets returned 33% in local currency, and Latin American markets gained 30%. But now there's an additional reason to own the stocks: Companies in developing countries are themselves worth owning as well-run, profitable, burgeoning global businesses.

An additional attraction of such stocks is that when you consider how fast the companies are growing, the shares are relatively cheap.


Little giants

Many of these companies earn the bulk of their rising profits in the most developed markets. Consider Embraer (symbol ERJ), a maker of regional jets based in São José dos Campos, Brazil. The stock trades on the New York Stock Exchange with a market capitalization of $9 billion. Embraer has revenues of $5 billion, and about two-thirds of the company's orders come from U.S. airlines, with significant sales as well in Switzerland, Britain, China, France and Saudi Arabia.

Cemex (CX), the Mexican cement company, received roughly one-fifth of its revenues last year from the U.S., two-fifths from Europe and only one-fifth from Mexico itself.

Embraer and Cemex are among the companies highlighted in a report issued in January by Boston Consulting Group on "new global challengers."

To construct its list of 100 companies, BCG started with 3,000 firms headquartered in 14 countries that it terms rapidly developing economies, or RDEs. The researchers omitted joint ventures and subsidiaries of multinationals. To make the final cut, firms had to have at least $1 billion in annual sales as well as a broad international presence, good access to capital and strong technology.

Of the final 100, 41 were based in China, 20 in India, 13 in Brazil, seven in Mexico, six in Russia, three in Turkey, two each in Malaysia and Thailand, and one each in Argentina, Chile, Egypt, Hungary, Indonesia and Poland.

The biggest businesses in RDEs today tend to be natural-resources firms, but most of them were too stodgy to make the BCG list. Only nine of the 100 were fossil-fuel companies, but they included such giants as PetroChina (PTR), which in early January had a larger market capitalization ($326 billion) than Microsoft, and Poland's PKN Orlen, the largest company in Central Europe, with $17 billion in revenues.

Instead of fossil fuels, BCG's largest single category was automotive equipment. Also high on the list were such sectors as consumer electronics and engineered products.

Buying abroad

Americans will find many of these new global challengers unfamiliar. I'd never heard of Marcopolo, the world's third-largest manufacturer of buses, with plants in four Latin American countries as well as Portugal and South Africa. The company, based in Brazil, was founded in 1949 and trades on the Bovespa, the São Paulo stock exchange. Marcopolo has a market cap of $1.5 billion, and its stock returned nearly 50% in 2007.

Then there's Tenaris (TS), an Argentine maker of tubes and pipes, with sales of $10 billion, a market cap of $24 billion and a price-earnings ratio, based on estimated year-ahead earnings, of just 10. About four-fifths of the company's revenues come from abroad.


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