3 'Back Door' Emerging-Market Stocks for 2011

By Charles Sizemore, InvestorPlace.com

NEW YORK (InvestorPlace) -- Most experienced globetrotters have come across a copy of Rick Steves' Europe Through the Back Door in one of their travels. Appealing to budget-conscious students and backpackers, the book tells you how to avoid many of the expensive pitfalls of foreign travel and offers cheaper "back door" ways to enjoy Europe's treasures.

I want to do precisely the opposite: I want to recommend that investors use Europe itself as a back door way to access the riches of emerging markets. The explosive growth of emerging titans like China, India, Brazil and Turkey is real. Living standards are quickly rising, and tens of millions of eager consumers join the ranks of the global middle class every year. The problem is that it's not always easy to access their pocketbooks.

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Quite frankly, most investment options are terrible. Consider the case of the popular iShares MSCI Emerging Markets ETF (EEM). This fund has an average daily trading volume of 60 million shares, making it one of the most widely traded ETFs on the market.

Unfortunately, it's also one of the most poorly named ETFs on the market -- it's not really an emerging-market ETF at all. It's an indirect play on the U.S., Europe and global factors, since most of its components are export-oriented companies, materials companies, and banks. Furthermore, nearly one-fourth of the fund is allocated to South Korea and Taiwan -- two countries that are not emerging -- they've already emerged.

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Investors wanting direct exposure can instead buy shares of the EG Shares Emerging Market Consumer ETF (ECON), which invests in emerging-market companies that cater to those domestic consumers I mentioned above.

But some of the best bargains now are actually indirect back door plays. The lingering sovereign debt crisis has curbed investor enthusiasm for European stocks in general. But with crisis comes opportunity, I'm recommending three dirt-cheap European blue chips that are well-placed to benefit from the continued rise of the emerging-market consumer.

I'll start with British premium spirits company Diageo (DEO). You may have never heard of this company, but I guarantee you've heard of its brands. Diageo has the No. 1 premium Scotch whiskey in the world by sales in Johnnie Walker, and the No.1 premium vodka in Smirnoff. In Tanqueray gin, Bailey's Irish Cream, Jose Cuervo tequila and Guiness Irish stout beer, Diageo enjoys category leadership. Other brands of note include Captain Morgan rum, J&B Scotch whiskey, Crown Royal Canadian whiskey, and the high-end Ketel One vodka.

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