by   |   January 17, 2014   |   on ,

Jubak’s Contrarian Emerging-Market Plays

The S&P 500 hit the breakeven mark for 2014 on Thursday, but emerging markets continue to struggle.

Thus far there is nothing to indicate that these upstart countries are worthy of investment consideration.  But Jim Jubak, manager of Jubak Global Equity Fund (NYSE: JUBAX), is not deterred.

In a recent interview, Jubak suggested that investors consider owning the emerging-market dogs of 2013. It’s a standard contrarian play to buy those stocks that have been hit hard for whatever particular reason.

The problem is that these stocks can continue to fall until some catalyst is found to propel them higher.

Thus far, that catalyst remains elusive. One of the largest emerging-market exchange-traded funds, Vanguard FTSE Emerging Markets ETF (NYSE: VWO), is down 3.25% so far in 2014.

Counter to that trend is the performance of one of Jubak’s picks, AGL Energy (OTC: AGLNY). The Australian utility stock is up over 2% so far this year after losing 15% in 2013. In addition, the stock pays a fat dividend of 6%.

To the extent the Australian economy stabilizes, AGL could be a big winner this year.

Throwing out the baby with the bath water is a popular expression in the market.  A second pick by Jubak, the Chilean mining concern  Chemical and Mining Co. of Chile (NYSE: SQM), is a stock investors dumped last year thanks to the fertilizer component of its business.

If you recall, fertilizer stocks, mainly in the potash industry, were crushed last year. However, Chemical and Mining’s fertilizer business is not potash-based. No matter as investors sold the stock anyway.

Today investors get this wonderful lithium-mining business – a very hot category – at quite the cheap price. Like AGL, Chemical and Mining pays a healthy dividend near 5%. The stock is up nearly 10% so far in 2014.

Jubak also likes Chinese-based LightInTheBox (NYSE: LITB). Like many IPO stocks, it has been a roller coaster for LightInTheBox since coming to market last June. Shares priced at $9.50 and jumped to a peak of $22 per share a short month or two later.

It’s been downhill ever since as the stock fell to a low of nearly $6 per share late 2013.

LightInTheBox operates in the shadow of behemoth Alibaba. Jubak thinks the market is plenty big for both to succeed, and with the stock trading for a discount to the offering day closing price, it might be a great emerging-market bargain for 2014.

LightInTheBox is up almost 30% this year and poised for further gains.

The headlines right now are very bearish for the emerging markets. The focus of investors continues to be on the larger developed economies including the U.S.

As always, within that construct are plenty of stocks that offer compelling value. The three mentioned by Jubak are down in the dumps.

Buying these dogs now is likely to pay off when that catalyst is found. Thus far in mid-January, it looks like all three are catching fire.