5 Undervalued Emerging Market Stocks With Encouraging Inventory Turnover

James Dennin, Kapitall: We decided to look for undervalued emerging market stocks in countries like China and Brazil. 

The markets rose at the end of last week, and they're still looking strong today, including some of the exchanges in emerging market economies. While it's been widely reported that some emerging powerhouses like China  are slowing down, growth in those markets is still on track to fuel the global economy into 2030

(Read more on China from Kapitall: Chinese Hydropower: Investing Idea or Just Another Industrial Complex?)

With that in mind, we decided to look for some emerging market stocks that might be undervalued, in order to find value potential among the volatility in global markets.

To build our list, we constructed a universe of emerging market stocks with a low  price-to-book ratio (P/B) below one. This means that the stock is trading at a relatively low price relative to what the company is worth. To get a better idea of how the company is actually doing, we then limited the search to companies with encouraging inventory trends. 

Inventory can represent two things: the company’s expectation of what they will soon sell, and also what the company has not yet sold. Therefore, a growing inventory by itself can mean a more positive sales outlook, or indicate negative trends such as the inability to sell products.

But when compared with revenue growth, changes in inventory paint a clearer picture. If inventory grows faster than revenue, it suggests the company is having trouble selling its inventory. If inventory grows slower, it may indicate that the company is selling even more than they anticipated.

We were left with five stocks, four in China and one in Brazil, that demonstrate positive inventory trends. 

Click on the interactive chart to view annual returns over time.

Do you see investing opportunities in these emerging market stocks? Use the list below to start your analysis. 

1. China Automotive Systems Inc. ( CAAS): Engages in the manufacture and sale of power steering systems and other component parts for the automotive industry in the People's Republic of China. Market cap at $177.23M, most recent closing price at $6.32.

Revenue grew by 21.78% during the most recent quarter ($97.89M vs. $80.38M y/y).

Inventory grew by 2.9% during the same time period ($48.25M vs. $46.89M y/y).

Inventory, as a percentage of current assets, decreased from 13.05% to 11.23% during the most recent quarter (comparing 3 months ending 2013-06-30 to 3 months ending 2012-06-30). 
 

 

2. Jinpan International Ltd. ( JST): Engages in the design and manufacture of cast resin transformers for voltage distribution equipment. Market cap at $97.5M, most recent closing price at $6.02.

Revenue grew by 5.64% during the most recent quarter ($58.66M vs. $55.53M y/y).

Inventory grew by -6.95% during the same time period ($41.79M vs. $44.91M y/y).

Inventory, as a percentage of current assets, decreased from 20.38% to 18.21% during the most recent quarter (comparing 3 months ending 2013-06-30 to 3 months ending 2012-06-30).
 

 

3. Petroleo Brasileiro ( PBR): Engages in oil and natural gas exploration and production, refining, trade, and transportation businesses. Market cap at $107.94B, most recent closing price at $16.55.

Revenue grew by 2.63% during the most recent quarter ($35,569M vs. $34,659M y/y). 

Inventory grew by -5.94% during the same time period ($14,035M vs. $14,921M y/y). 

Inventory, as a percentage of current assets, decreased from 25.93% to 21.49% during the most recent quarter (comparing 3 months ending 2013-06-30 to 3 months ending 2012-06-30). 

 

4. Semiconductor Manufacturing International Corp. ( SMI): Semiconductor Manufacturing International Corporation, an investment holding company, engages in the computer-aided design, manufacture, packaging, testing, and trade of integrated circuits. Market cap at $2.29B, most recent closing price at $3.57.

Revenue grew by 15.85% during the most recent quarter ($534.26M vs. $461.17M y/y).

Inventory grew by 10.57% during the same time period ($289.95M vs. $262.24M y/y).

Inventory, as a percentage of current assets, decreased from 23.14% to 20.61% during the most recent quarter (comparing 3 months ending 2013-09-30 to 3 months ending 2012-09-30).

 

5. Trunkbow International Holdings ( TBOW): Operates as a mobile application enabler in the Peoples Republic of China. Market cap at $41.22M, most recent closing price at $1.02.

Revenue grew by 5.64% during the most recent quarter ($6.18M vs. $5.85M y/y).

Inventory grew by -72.72% during the same time period ($9.04M vs. $33.14M y/y).

Inventory, as a percentage of current assets, decreased from 38.33% to 10.54% during the most recent quarter (comparing 3 months ending 2013-06-30 to 3 months ending 2012-06-30).

 

 

( List compiled by James Dennin, a Kapitall Writer. Yearly returns sourced from Zacks Investment Research, all other data sourced from Finviz.)

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