ADR (American Depositary Receipt) stocks are a good way for investors to invest in foreign companies and diversify their portfolios. For investors that are unfamiliar with ADR, here is an article explaining what is an ADR in the stock market. The 3 ADRs that we like for 2022 are Futu Holdings (FUTU), Sea (SE), and Infosys (INFY).
Futu Holdings (FUTU) is a digital brokerage and wealth management platform based in Hong Kong and China. Futu and its subsidiaries provide investing services, including trading and clearing services for United States, Hong Kong, China, and Singapore stocks, margin financing, wealth management, market data, and interactive social features to individual investors through its proprietary one-stop digital platform. It offers a network centered around its users and connects them with investors, companies, analysts, media, and key opinion leaders.
Futu stock has been beaten down from $190 per share in February 2021 to $38 per share in March 2022. This is largely due to the broad decline of growth stocks, worry of the SEC delisting Chinese companies, and the Chinese government possibly posting stricter rules on financial companies. However, we think Futu’s outlook is brighter than what the market expects.
The company has a strong presence in China and Hong Kong and its active user is continuing to grow. In FY21, the total number of paying clients increased 140.8% year-over-year to 1.2 million and the number of users increased 45.8% year-over-year to 17.4 million. This led to a full-year revenue increase of 35.1% to $205 million. At the current market price, this implies an fwd PE ratio of 16 which is lower than Interactive Brokers (IBKR) which is valued at 19 PE with a much slower growth rate.
The company also announced a $500 million stock buyback which will greatly benefit its shareholders. It is also getting regulatory approvals from countries like Australia and Singapore to start onboarding customers overseas to diversity their user base and revenue streams. The Chinese government also recently spoken that it will fully support Chinese-based companies listed overseas which will give relief to companies like Futu. We believe there are multiple tailwinds in the future and Futu stock is undervalued.
Sea (SE) is a Singapore-based e-commerce, gaming, and finance company founded by Forrest Li in 2009. Its subsidiaries include e-commerce platform Shopee, gaming studio Garena and SeaMoney. Shopee is the leading e-commerce platform in Southeast Asia and Taiwan. It offers a wide product choice supported by integrated payments and seamless fulfilment. Garena is a leading online games developer and publisher with a global footprint across more than 130 markets which provides global users access to popular and engaging mobile and PC online games that it develops, curates, and localises. SeaMoney is a leading digital payments and financial services provider in Southeast Asia that offers mobile wallet services, payment processing, credit, and related digital financial services and products.
Like Futu stock, SEA’s stock got caught in the broad growth stock decline and dropped from $360 per share in November 2021 to $116 in March 2022. The stock is trading at a very compelling valuation at its current price. In its latest quarterly report, it reported revenue growth of 106% year over year to $3.2 billion and profit up 145% to $1.3 billion. It is poised to continue its strong growth with management guiding a 76% growth for FY 2022. The company is getting bigger and bigger as more customers move from shopping at physical stores to shopping online, and Shopee is starting to expand beyond Asia into countries like Brazil. The gaming and finance segment is also getting a lot of tailwinds as e-sport and digital payments are getting more and more popular. The company is truly firing at all cylinders and at a price to sales ratio of 5 while growing its profitability, we believe the valuation is very attractive.
Infosys (INFY) is an India-based consulting company founded back in 1981. It is currently one of the largest companies in the world with over 290k employees and a market cap of over $100 billion. The company focuses on next-generation digital services which help guide enterprise clients through their digital transformation journey. It operates in multiple industries such as manufacturing, healthcare, retail, etc with different services such as data analytics, IoT (internet of things), cybersecurity, etc. Given the uncertainty in the present days with incidents such as the covid outbreak and Russia Ukraine war, digital consultation is much needed for companies to sail through these unprecedented times.
Unlike Futu and SEA, Infosys’s stock price has been doing very well in the past year and is now trading near its historical high. Despite being a very large company, it is still putting up great numbers with revenue increasing by 20.3% to $4.25 billion in the latest quarter and is forecasted to continue growing revenue by double digits in the coming few years. It also has a dividend yield of 1.63% and has been growing its dividend payout for the last five years. We believe the business is as strong as ever with companies needing more and more consulting services during uncertain times, and given the company’s solid revenue growth and strong performance, we believe the stock is a buy.
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