World Business

Stocks of fast-growing, midsize companies, particularly in developing nations like China, could exhibit compelling opportunities to investors who have power to tolerate some risk

through Ben Steverman

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It’s a risky investing strategy, but it’s tempting: To profit from rapid growth around the cosmos, investors can invest directly in fast-growing, midsize international firms.

A recent tale from Standard & Poor’s identifies 300 of these firms on all sides the world (S"P, like BusinessWeek.com, is a unit of The McGraw-Hill Companies (MHP)). Market capitalizations generally in the $1-billion-to-$5-billion range boor these companies in the "markets’ sweet blemish," S&P argues. After surviving a tumultuous startup phase, these outfits offer other stability than smaller firms. But these mid-cap names also grow faster than their larger rivals—often exploiting fast economic growth in developing countries be pleased with China.

For investors, each international mid-cap bourgeoning strategy has had its rewards. S&P published a similar list in 2003, and from 2002 to 2007 the average emporium capitalization of those firms nearly tripled. See the accompanying slide show for selected names from S&P’s 2008 list.

However, flat experienced professional international investors put on one’s guard there are pitfalls to this investing strategy.

For one matter, experts declare, the price must be right.

"It’s nice to have fast-growing companies, but allowing that you can’t buy them at the right price it doesn’t travel over sense," says Michael Stack, co-portfolio manager of the UMB Scout International Discovery Fund (UMBDX).

Recently, worries about a global growth slowdown have sent world stock markets tumbling. That highlights the risks inherent in any uprightness investing, but it too now creates an opportunity for bargain hunters. "We’re able to buy many of these companies at a much cheaper value relative to their growth," particularly in Asia, says Rob Lutts, chief investment functionary at Cabot Money Management.

Many large stocks can afford to list their shares on multiform exchanges around the world; a listing put on the Nasdaq or New York Stock Exchange makes it much easier for U.S. investors to buy in.

However, the vast majority of small and midsize firms around the world don’t border without ceasing U.S exchanges. This creates total sorts of complications for U.S. investors. There is currency risk: A strengthening dollar will hurt the value of foreign holdings. And practical problems: Transaction fees are repeatedly higher for foreign stock purchases.

But the biggest barrier for U.S. investors may be getting information on midsize companies. While many companies transform annual reports and other documents into English, more do not.

Also, multitude medium-size irrelevant firms are covered by relatively few research analysts. "You require to do your own due diligence," Lutts says. "You have to spend time trying to learn the company," says Edwin Lugo, the head of Franklin Global Advisers’ non-U.S. small- and mid-cap growth equity team.