Making a Mint in Medellin

11/10/2010 9:35 am EST


Paul Goodwin

Emerging Markets Specialist and Analyst, Cabot Wealth Network

Shares of the top bank in the world’s hottest emerging market should keep marching higher, writes Paul Goodwin in the Cabot China and Emerging Markets Report.

It's not really a surprise that emerging market stocks are kicking sand in the face of the developed world's equities. With China and India doing the heavy lifting, the engines of growth are just stronger there. 

Plus, emerging markets are less susceptible than developed markets to debt crises; they don't have big enough budgets to get into that kind of trouble. 

Fourteen of the 22 countries in the MSCI Emerging Markets Index have registered double-digit gains for the year, led by Colombia (57.9%), Peru (49.2%), and Thailand (45.2%). 

The BRIC countries (Brazil, Russia, India, and China) are the largest of the emerging markets, and they have shown widely varying results.  India has booked a robust 18.8% gain for the year to date, with China and Russia each up 5.6%. Brazil trails the group with a 2.4% gain.

What conclusions do I draw from all these numbers? Well, only the usual things I've been saying for years.  First, the emerging markets are stronger than the developed markets right now.  That's not a surprise.  It will also be no surprise when markets correct and emerging markets fall farther than developed markets.  There is no gain without risk, and the higher the potential gain, the higher the risk.

Colombia [has been] the leading emerging market of the past year.  Colombia is enjoying the benefits of kicking out the drug lords and getting back to the business of economic growth.

One of the companies that's enjoying the experience is Bancolombia (NYSE: CIB), the largest bank in the country.  This is no flash-in-the-pan company. Earnings growth has been steady, with gains of 39%, 45%, 31%, and 24% in the last four quarters, and the company's after-tax profit margin reached 20.8% in the third quarter. [The latest numbers are 19.5% for India, -4.9% for China, 14.3% for Russia and 4.5% for Brazil.—Editor]

The chart for CIB shows a stock that rose strongly in 2009, then put in a five-month base that lasted through May 2010.  When the blastoff came in June, the stock raced from $44 on June 1st to $62 in late July. Two bases—three weeks at $64 in September and five weeks at $66 starting on September 28th—have set the stock up for further advances. (It closed just above $66 Tuesday—Editor.)

CIB isn't going to be a rocket shot. The company pays a 2% dividend and works better as a long-term holding than a trading vehicle. But CIB is a great base holding to underpin the higher-volatility picks in your portfolio while providing a little income.

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