Emerging markets and developing economies account for close to 80% of global economic growth, almost double their share from two decades ago, according to the International Monetary Fund (IMF). The BRICS nations—Brazil, Russia, India, China, and South Africa—are expanding quickly, making their potential difficult to overlook.

Thus, investors could consider adding fundamentally sound emerging market stocks, Petróleo Brasileiro S.A. – Petrobras (PBR) and Vale S.A. (VALE) to their portfolios for global exposure.

Emerging markets saw strong growth in the first quarter of 2024, with robust domestic demand offsetting external economic challenges, according to Fitch Ratings. Lower inflation, rapid wage growth, low unemployment, and social benefit payments in several countries contributed to increased consumer spending.

While the G7 countries’ combined GDP is around $15 trillion greater than that of the BRICS nations, with continued higher growth rates and the potential to add more members, BRICS looks likely to overtake the G7 in terms of economic size within two decades.

Considering these factors, let’s take a look at the fundamentals of the two emerging market stock picks.

Petróleo Brasileiro S.A. – Petrobras (PBR)

Headquartered in Rio de Janeiro, Brazil, PBR explores, produces, and sells oil and gas in Brazil and internationally. The company operates through three segments: Exploration and Production; Refining, Transportation and Marketing; and Gas and Power. 

PBR’s trailing-12-month gross profit margin and EBIT margin of 52.24% and 36.85% are 16.1% and 83.5% higher than the industry average of 45% and 20.08%, respectively. Its trailing-12-month net income margin of 15.78% is 39.2% higher than the industry average of 11.42%.

During the second quarter (ended June 30, 2023), PBR’s sales revenue grew 7.4% year-over-year to R$122.26 billion ($22.11 billion), while its gross profit increased 5.8% from the year-ago value to R$61.05 billion ($11.04 billion). In addition, it reported an adjusted EBITDA of R$49.74 billion ($8.99 billion).

Street expects PBR’s EPS to increase 38.2% year-over-year to $1.18 for the third quarter ending September 2024. The company’s revenue for the same quarter is expected to be $22.63 billion. Also, PBR surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive.

Over the past year, the stock has gained 7.7%, closing the last trading session at $14.63.

PBR’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

PBR has an A grade for Quality and a B for Momentum and Stability. It is ranked #14 out of 40 stocks in the A-rated Foreign Oil & Gas industry.

Click here to access the additional PBR ratings (Growth, Value, and Sentiment).

Vale S.A. (VALE)

Headquartered in Rio De Janeiro, Brazil, VALE produces and sells iron ore, iron ore pellets, nickel, and copper in Brazil and internationally. The company operates through the Iron Solutions and Energy Transition Materials segments.

VALE’s trailing-12-month gross profit margin and EBIT margin of 40.66% and 33.16% are 41.7% and 207.5% higher than the industry average of 28.69% and 10.78%, respectively. Its trailing-12-month net income margin of 23.19% is 372% higher than the industry average of 4.91%.

VALE’s net operating revenue for the fiscal second quarter ended June 30, 2024, grew 2.6% year-over-year to $9.92 billion. Its operating income rose 34.7% over the prior-year quarter to $3.88 billion.

Additionally, the company’s net income and earnings per share attributable to VALE’s shareholders were $2.77 billion and $0.65, representing increases of 198.4% and 225% year-over-year, respectively.

Analysts expect VALE’s revenue for the third quarter (ending September 2024) to be $10.13 billion, while its EPS is expected to be $0.56. Over the past month, the stock has declined marginally to close the last trading session at $10.43.

VALE’s robust fundamentals are reflected in its POWR Ratings. Its overall rating is B, which equates to a Buy in our proprietary rating system.

The stock has an A grade for Value and a B for Quality. VALE is ranked #7 out of 27 stocks in the Industrial – Metals industry.

Beyond what is stated above, we’ve also rated VALE for Growth, Stability, Sentiment, and Momentum. Get all VALE ratings here.

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PBR shares were trading at $14.46 per share on Friday afternoon, up $0.22 (+1.54%). Year-to-date, PBR has declined -3.45%, versus a 18.82% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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