Stocks With High Emerging Market Exposure That Could Have Big Upside

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The start to 2014 has been very rocky one for investors, with markets falling more than 3% since the start of the year. On the heels of an outstanding 30% rise in the markets in 2013, some Wall Street voices are saying that the party is over and complacency has set in. The usual chorus of bearish commentators are making their way back to financial news shows and forums with concerns from everything to a huge market drop to an emerging market (EM) meltdown.

The equity strategy team at J.P. Morgan presented a new research report that actually makes a very solid case not only for equities, but for equities with higher EM exposure. Their research shows that stocks with low EM exposure trade at 18.9 price-to-earnings (P/E), which is 3.3 turns above those with high EM exposure. This 3.3x premium is well above the 10-year average of 1.6x and suggests that a contrarian stance would argue that high EM exposure may be the better risk/reward today. They also point to six factors ranging from lower interest rates to good fourth-quarter earnings to lower gasoline prices as positives for the stock market.

Here are the 10 “High Emerging Market Exposure” cyclical ideas to buy from J.P. Morgan.

E.I. du Pont de Nemours and Co. (NYSE: DD) is rated at Overweight at J.P. Morgan. The company had outstanding earnings and is benefiting from the strong manufacturing growth in the United States and abroad. DuPont is fits into the diversified conglomerate category. Shareholders are paid a solid 3% dividend. The J.P. Morgan price target for the stock is $67. The Thompson/First consensus price target for the stock is $65.73. DuPont closed Friday at $61.01.

Eastman Chemical Co. (NYSE: EMN) is another top name with solid EM sales and revenue. The company topped earnings expectations in the fourth quarter of 2013 on strength across its Additives and Functional Products, Advanced Materials and Fibres divisions. Eastman Chemical saw higher sales across all geographic regions in the quarter. Revenues from the United States and Canada rose roughly 5% year over year to $1,019 million. Sales from Asia-Pacific went up 5% to $649 million. Europe, Middle East and Africa registered a 2% gain in sales to $472 million, while Latin American revenues edged up 4% to $125 million. Investors are paid a 1.8% dividend. The J.P. Morgan price target is posted at $83, and the consensus number is set at $89.63. The stock closed Friday at $77.96.

Intel Corp. (NASDAQ: INTC) hits the J.P. Morgan screens, and the chip giant may be due for an up year. Commercial PC purchases have picked up and the company is working on boosting the ability of its general-purpose processors to move high volumes of data. Shareholders are paid a very nice 3.7% dividend. J.P. Morgan has a $30 price objective. The consensus price target for the stock is $24. Intel closed Friday at $24.54.

KLA-Tencor Corp. (NASDAQ: KLAC) is engaged in the design, manufacture and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. The company reported very solid fiscal second-quarter non-GAAP earnings of $0.85 per share (beating analysts’ estimates by $0.05) on revenues of $705.13 million (in-line with analysts’ estimates). Investors are paid a 2.9% dividend. The J.P. Morgan price target is $76, and the consensus target is $68.83. Shares closed Friday at $61.47.

Lam Research Corp. (NASDAQ: LRCX) designs, manufactures, markets, refurbishes and services semiconductor processing equipment used in the fabrication of integrated circuits. The company offers plasma etch products that remove materials from the wafer to create the features and patterns of a device. The J.P. Morgan analysts highlight the company and its peers as having a significant equipment opportunity from the NAND evolution. The J.P. Morgan price target for the stock is $65. The consensus target is slightly lower at $62.16. Lam Research closed Friday at $50.61.

NCR Corp. (NYSE: NCR) is a top focus list pick at J.P. Morgan. The firm believes growth and potential earnings per share upside originates in the retail and hospitality segments with potential margin upside from the Radiant and Retalix software businesses. The analysts also sense that financial services revenue is stabilizing, and even benefiting from the front-end of branch transformation. The J.P. Morgan price target for the stock is $48, and the consensus price target is $44.63. The stock closed Friday at $35.19.

ON Semiconductor Corp. (NASDAQ: ONNN) is a smaller cap name that may bring big returns for investors. It was also one of our top tech stocks trading under $10. The company offers a comprehensive portfolio of energy-efficient power and signal management, logic, discrete and custom solutions to help customers solve their unique design challenges in automotive, communications, computing, consumer, industrial, LED lighting, medical, military/aerospace and power supply applications. The J.P. Morgan price target is $10. The consensus is lower at $9.33, and the stock closed Friday at $8.36.

TAL International Group Inc. (NYSE: TAL) engages in leasing intermodal containers and chassis worldwide. The company operates in two segments: Equipment Leasing and Equipment Trading. TAL’s revenue growth has slightly outpaced the industry average of 5.8%. Since the same quarter one year prior, revenues increased by 6.3%. This growth in revenue appears to have trickled down to the company’s bottom line, improving the earnings per share. Investors are paid an outstanding 6.5% dividend. The J.P. Morgan price target is set at $50, while the consensus is at $51.45. The stock closed Friday at $43.03.

TTM Technologies Inc. (NASDAQ: TTMI) is a global provider of time-critical and technologically complex printed circuit boards (PCB) products and backplane assemblies — PCBs with electronic components — which serve as the foundation of advanced electronic products. It is the largest PCB manufacturer in the United States and sixth largest in the world. Its operations are based in California with manufacturing facilities in both the U.S. and China. The J.P. Morgan price target for the stock is $11, and the consensus figure is $11.67. The stock closed on Friday at $8.01.

Tupperware Brands Corp. (NYSE: TUP) rounds out the list of names with solid EM exposure at J.P. Morgan. Growth has slowed lately, but the company’s financial performance is showing no reason to panic about the future of the company. Furthermore, the stock now is trading at a very reasonable valuation. Investors seem to be understandably apprehensive when it comes to direct-selling companies given the Herbalife controversy. Tupperware has not been accused of any wrongdoings, so the recent fall in the stock could easily turn out to be a buying opportunity for those who can withstand the short-term volatility. Investors receive a very respectable 3.5% dividend. The J.P. Morgan price target is $102, and consensus is $91.25. The stock closed on Friday at $78.36.

Plain and simple, the J.P. Morgan call is a contrarian one. However, given the solid names in their list of stocks to buy, investors are not exposed to companies that are lacking very diversified sales and operations. There have been many EM scares over the years. They tend to be dramatic at first and then fade away. Scaling in some capital now and watching to see if they dip more may be a very prudent strategy.

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