Here’s a trend you can take to the bank: as consumers in the U.S. and Europe cut back on spending, the source of growth for companies will shift to consumers in fast-growing overseas markets.
I don’t remember when this really struck home. Maybe it was walking past rows of glittering Ferraris and Lamborghinis in showrooms along the Avenida Brasil in São Paulo, Brazil. Maybe it was looking out over the world’s largest infinity pool on the 2.5-acre rooftop of the Singapore Marina Bay Sands Hotel.
It doesn’t really matter. The point is this: The world’s consumer power base is shifting. The “rest” are playing catch-up to the “West” right before our eyes. Most investors don’t see this. They are blinded by the doom and gloom surrounding the financial crisis, the debt ceiling, and the gridlock in Washington.
Too bad. They are missing out on the profit trend of a lifetime: the shift in power and money from West to East and from developed economies to emerging ones.
When investing in the growth of this new consumer class, you need to ask yourself two simple questions: What do these people need? And what do they want? There are many answers. Better houses. More protein in their diets. Better transport. New electronic gadgets. These are all great ways to profit. But the greatest rewards could go to companies that offer emerging-market consumers something even more precious: better health.
Of course, the modern drugs that can help kill bacteria, fight high blood pressure, reduce cholesterol, and relieve pain—things we in the developed world take for granted—are often too expensive for many in Asia and South America. But thanks to cheap generic copies of these drugs, modern treatments are not out of reach.
No wonder the market for generic drugs is on fire. One independent industry analyst, Datamonitor, estimates that the market for generic drugs will grow from $243 million, where it stood in early 2010, to $3.7 billion in 2015—a staggering growth rate of 1,422% in just four years.
The advantage of generics over brand name drugs can be summed up in one word: price. Generic drugs can cut treatment costs by up to 75%. That’s a huge saving. One generic drug company I have my eye on is in India, but you can buy through your normal broker on the New York Stock Exchange.
This company is not a pure-play on generics. It also has big pharmaceutical services and active-ingredients business segments. But it has two important advantages over the competition: direct access to the Indian market (one of the fastest-growing in the world), and a low-cost manufacturing base there.
This low-cost advantage will also help this company push into developed markets, where much of the growth in generic drug use will take place.
That’s the big-picture investment case. As always, you need to make sure any stock you invest in also has rock-solid fundamentals.
This company has a proven track record of growth. Plus, it is selling at a discount to that growth. In other words, it’s selling at an attractive discount to fair value. Another big plus for this stock is that it’s a family-run firm in which family and other insiders own about 25% of outstanding stock. Also, it hasn’t achieved its high growth rates by piling on debt.
Editor’s note: You can access the full investment article written by Chris Hunter in the current issue of International Living magazine, where he reveals all about this family-owned company. Subscribe here to access this article.