Calamos Likes Companies with Emerging Market Exposure
The Calamos website describes Calamos Evolving Growth Fund (CNWGX) as attempting “to better manage the classic pitfalls of emerging market investing by including both stocks and convertibles in its asset mix to help control the potential volatility of emerging markets.” That approach is interesting right now because Calamos recently released a report in which it espoused the view that emerging markets “offer the best overall combined risk-reward prospects…”
In the very same release, the fund company also noted that a large percentage of the most important domestic companies derive a material portion of their revenues from outside the United States. This would seem to make Calamos Evolving Growth Fund an almost perfect place to find U.S. listed companies that Calamos believes will benefit from emerging market growth.
This is particularly true because the fund has only been around a year or so, but is an example of Calamos’ recent push to include more global and equity exposure into its product mix. The fund family has traditionally been known for its heavy focus on convertible securities.
Calamos Evolving Growth Fund, which is team managed, is growth focused, seeking out companies that are believed to offer the best opportunities for capital appreciation over the long term. The management team takes financial strength, earnings, cash flow, and management quality into consideration when examining individual companies. It has great latitude across country, sector, and market capitalization allocations, and uses a top down approach to help reduce risk when structuring the portfolio.
A look at a recent holdings release highlights some more common names that fit the U.S. listed companies with emerging market exposure theme, such as Coca-Cola (KO – Free Coca-Cola Stock Report), and some less obvious ones, including Herbalife (HLF) and Mead Johnson Nutrition Company (MJN).
The Coca-Cola Company is the world's largest beverage company. It markets over 500 nonalcoholic beverage brands through a network of company-owned and independent bottlers/distributors, wholesalers, and retailers. Some of the company’s leading company-owned and licensed brands include: Coca-Cola, Diet Coke, Sprite, Fanta, Fresca, Dasani, glaceau vitaminwater, Powerade, and Minute Maid. Foreign sales accounted for about 70% of 2010 revenues.
The company delivered solid June-quarter results, as continued strength overseas made up for some softness in North America. Adjusted earnings came in at $1.17 a share, up 10% from last year's tally and in-line with our call. Reported revenues, meanwhile, jumped 47%, to nearly $12.74 billion, with the top line benefiting from last year's acquisition of an affiliated bottler's North American operations, as well as from volume and currency gains. Over the long haul, the company's “high-single-digit” bottom-line growth target seems achievable, given the favorable demand environment overseas. Market opportunities in Asia remain especially attractive. In China and India, for example, per-capita consumption (PCC) of Coke products is modest, at just 20 or so individual servings a year. Comparatively, annual PCC in a more established market like Mexico is upwards of 660.
Herbalife, Ltd., is a global network marketing company that sells weight management, nutritional supplement, and personal care products. The company offers products in four primary categories: weight management, 62.1% of 2010 revenues; targeted nutrition, 23.0%; outer nutrition, 4.7%; energy, sports & fitness, 4.4%; other, 5.8%. The company’s products, which include protein shakes and snacks, energy and fitness drinks, vitamins and nutritional supplements, and skin and hair products, are available exclusively through its more than two million or so distributors in 75 countries. Sales outside the United States accounted for nearly 80% of 2010 revenues.
Sales of late have been healthy across most of the company’s markets, with operations in Asia and South and Central America posting the most impressive results. That's a testament to the company's ability to attract and retain distributors and its focus on product introductions. Further penetration of existing markets and expansion into new ones ought to benefit the company over the next year or so. A secular shift toward healthier lifestyles, given rising obesity rates and an aging population, should also help support long-term growth.
Mead Johnson Nutrition Company
Mead Johnson Nutrition Co. provides infant formula and children's nutrition products. It offers formula for routine feeding as well as a range of specialty formulas for mild to severe intolerance, and premature and low birth weight infants. The company’s nutrition products include powdered milk and milk modifiers, as well as pre- and post-natal nutritional supplements. Asia and Latin America accounted for 61% of 2010 sales, with North America and Europe making up the rest.
The company is making its biggest strides in emerging markets. Asia and Latin America accounted for 58% of sales in 2009, but were 64% of sales by the first quarter of 2011. This reflects the fast growth rates in these parts of the world, relative to North America and Europe. That said, the company’s U.S. business remains in the doldrums. Market-share gains have helped to offset this weakness in recent quarters, but revenue growth here is likely to be unimpressive.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.