Emerging markets are on a growth and expansion rally with their increasing contributing to the world economy, rising technological adaption, and favorable economic policy and are poised to surpass many developed economies.

Given the economies’ bright prospects, it could be ideal to invest in high-risk emerging market stocks Taiwan Semiconductor Manufacturing Company Limited (TSM), PDD Holdings Inc. (PDD), and Alibaba Group Holding Limited (BABA) for high rewards.

In a recent report, IMF stated that global growth is expected to remain in line with the April 2024 World Economic Outlook (WEO) forecast, at 3.2% in the current year and 3.3% in 2025. This is broadly due to services inflation holding up progress on disinflation.

Also, inflation risks have increased, resulting in raising the possibility of longer interest rates in the context of escalating trade tensions and increased policy uncertainty.

However, the US is expected to project a slower growth due to its inflation battle in 2023. The economy’s GDP sits at 2.7%. On the other hand, the BRICS economic alliance is on a trajectory to see its GDP grow to over $34 trillion in the next four years.

Emerging market stocks generally carry high risks, but also have high potential for high rewards for the investors.

Given the industry’s bright prospects, let’s delve into the fundamentals of the three best emerging market stocks: TSM, PDD, and BABA.

Taiwan Semiconductor Manufacturing Company Limited (TSM)

Headquartered in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices internationally. The company provides a range of wafer fabrication processes and offers customer and engineering support services.

On August 9, TSM reported net revenue of NT$256.95 billion ($7.98 billion) for July 2024 on a consolidated basis, indicating an increase of 23.6% from the prior month and an increase of 44.7% from July 2023. Further, it also reported revenue for January through July 2024 of NT$1,523.11 billion ($47.30 billion), up 30.5% from the same period in 2023.

On April 24, TSM unveiled its newest semiconductor process, advanced packaging, and 3D IC technologies for powering the next generation of AI innovations with silicon leadership. The company launched the TSMC A16TM technology, consisting of leading nano-sheet transistors with innovative backside power rail solutions.

It also introduced its System-on-Wafer (TSMC-SoW™) technology, an innovative solution to bring revolutionary performance to the wafer level.

For the second quarter that ended June 30, 2024, TSM’s net revenue increased 40.1% year-over-year to $20.82 billion. Its gross profit grew 37.6% from the year-ago value to $11.07 billion. The company’s income from operations of $8.86 billion indicates growth of 41.9% from the prior year’s quarter.

Furthermore, the company’s net income and EPS of $7.66 billion and NT$9.56 indicates increase of 36.3% year-over-year.

Street expects TSM’s revenue for the third quarter (ending September 2024) to increase 36.8% year-over-year to $23.12 billion, and its EPS is expected to grow 37.9% year-over-year to $1.78 for the same quarter. Moreover, the company has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is remarkable.

Over the past six months, TSM’s stock has soared 37.8% and 90.2% over the past year to close the last trading session at $174.54.

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

The stock has an A grade for Quality, and a B grade for Momentum and Sentiment. It is ranked #7 out of 90 stocks in the Semiconductor & Wireless Chip industry.

In addition to the POWR Ratings we’ve stated above, we also have TSM’s other ratings for Value, Stability, and Growth. Get all TSM ratings here.

PDD Holdings Inc. (PDD)

Based in Dublin, Ireland, PDD owns and operates a portfolio of businesses. The company operates Pinduoduo, an e-commerce platform which offers products like agricultural produce, apparel, shoes, bags, mother and childcare products, food and beverage, and it also operates Temu, an online marketplace.

PDD’s trailing-12-month gross profit and EBIT margins of 61.83% and 26.19% are 67.6% and 232.5% higher than the respective industry averages of 36.89% and 7.88%. Likewise, the stock’s trailing-12-month net income margin of 26.93% is considerably higher than the industry average of 4.57%.

For the first quarter that ended March 31, 2024, PDD’s revenues increased 130.6% year-over-year to $12.02 billion. Its non-GAAP operating profit grew 237.5% from the year-ago value to $3.95 billion. Non-GAAP net income attributable to ordinary shareholders and EPS came in at $4.24 billion and $0.71, up 202.1% and 199.4% from the prior year’s quarter, respectively.

Street expects PDD’s revenue and EPS for the second quarter (ended June 2024) to grow 94.6% and 94.4% year-over-year to $13.97 billion and $2.79, respectively. Furthermore, the company surpassed the consensus EPS and revenue estimates in all four trailing quarters, which is remarkable.

Shares of PDD have gained 10.4% over the past six months and 88.9% over the past year to close the last trading session at $149.29.

PDD’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.

PDD has a B grade for Sentiment, Quality, Momentum, and Growth. It is ranked #10 among 41 stocks in the B-rated China industry.

To access PDD’s ratings for Value and Stability, click here.

Alibaba Group Holding Limited (BABA)

Based in Hangzhou, China, BABA provides technology infrastructure and marketing assistance to merchants, brands, retailers, and other businesses for engaging with their customers internationally. It operates in seven segments: China Commerce; International Commerce; Local Consumer Services; Cainiao; Cloud; Digital Media and Entertainment; Innovation Initiatives and Others.

On July 23, BABA announced that its generative artificial intelligence (AI) toolkit, “Aidge,” has been adopted by over 500,000 merchants and has seen API calls double every two months. The AI tools have enhanced over 100 million product listings, boosting operational efficiency and market reach across e-commerce platforms.

On June 7, BABA entered into a collaboration with UEFA EURO 2024™, making it the official B2B E-commerce partner of UEFA EURO 2024™ in the U.S. and China. The partnership bodes well with the existing agreement and adds various opportunities for small and medium-sized enterprises on Alibaba.com to leverage the increased demand around the tournament.

For the first quarter, which ended June 30, 2024, BABA’s revenue increased by 3.9% year-over-year to $33.47 billion, and its income from operations was $4.95 billion for the quarter. The company’s non-GAAP net income and EPS came in at $5.60 billion and $0.28 for the quarter, respectively.

Furthermore, the company’s adjusted EBITDA and free cash flow were $7.04 billion and $2.39 billion for the quarter, respectively.

Analysts expect BABA’s revenue for the third quarter (ending December 2024) to increase 8.1% year-over-year to $39.11 billion. The company’s EPS for the same period is expected to grow 3.1% year-over-year to $2.72.

Shares of BABA have surged 6.5% over the past month and 13.5% over the past six months to close the last trading session at $83.18.

BABA’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

The stock has a B grade for Momentum, Sentiment, and Quality. BABA is ranked #8 of 41 stocks in the B-rated China industry.

Click here to access additional ratings of BABA for Growth, Value, and Stability.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

TSM shares were trading at $175.45 per share on Monday afternoon, up $0.91 (+0.52%). Year-to-date, TSM has gained 69.66%, versus a 18.48% rise in the benchmark S&P 500 index during the same period.

About the Author: Rjkumari Saxena

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions. More...

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