My portfolio contains a number of stocks that have large exposures to emerging markets. It’s my opinion that the rapid population growth and fast-growing incomes in such regions could help me make terrific returns. However, I think I should probably bulk up my holdings in companies that operate in Africa, and one way I’m thinking of doing this is by investing in cheap UK stock Airtel Africa (LSE: AAF).
A United Nations study written just before the pandemic reveals how population in half of Africa’s countries will double by 2050. The current make-up of my shares portfolio doesn’t provide me with big exposure to these fast-growing nations. I think Airtel Africa — which provides telecoms and mobile money services in Sub-Saharan nations — could help me redress this balance.
Airtel Africa’s latest financials showed pre-tax profits rising 81.2% in the three months to September. The business is rapidly expanding its business to keep the bottom line soaring, too, and especially its Airtel Money operations. This division has colossal growth opportunities given the low product penetration of financial products in Africa combined with soaring wealth levels there. Recent action on this front included the business obtaining a banking licence in Nigeria at the end of 2021.
Too cheap to miss?
Airtel Africa faces significant competition in its markets from local operators as well as from global leviathans like Vodafone. It will therefore have to row extremely hard to avoid being pushed out. Still, it’s my opinion that this threat is reflected in the telecoms firm’s rock-bottom share price.
Today Airtel Africa trades just above penny stock territory at 143p per share. Consequently it trades on a forward price-to-earnings growth (PEG) ratio of 0.4. Readings below 1 such as this suggests a UK share is undervalued in relation to its earnings prospects.
6.7% dividend yields!
Vistry Group’s (LSE: VTY) another UK share whose low share price belies the possibility of strong and sustained profits growth. This cheap stock trades on a PEG ratio of just 0.6 for 2022. What really grabs my attention, though, is the housebuilder’s terrific value when it comes to income. At current prices of £10.80 per share, the business commands an eye-watering 6.7% dividend yield. Airtel Africa’s 2.7% forward yield is decent but it comes nowhere close to this mammoth reading.
Vistry’s cheapness reflects investor fears that demand for newbuild properties is about to fall sharply. This isn’t a view that I myself share. Indeed, a recent survey revealed that around one-in-five Brits plan to buy a new property in 2022. With supply remaining in short demand, the likes of Vistry will be needed to make this happen.
I sincerely believe that low mortgage rates and government support for first-time buyers will remain in place for a long time yet, keeping the housing market in very rude health. It’s why I’d buy Vistry, despite the threat posed by rocketing construction costs, and aim to hold it for years to come.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Airtel Africa Plc and Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
