According to some U.S. politicians, Mexico is booming right now at America’s expense. Try telling that to American investors who are looking at Mexican stocks. While the economy is growing, it’s doing so at the expense of the Mexican Peso. The currency cost about 10 cents in 2010. It’s now priced near a nickel. That means Mexican assets have been getting cheaper throughout the decade, and the pace has been accelerating the last two years.
This is good for exporters, and companies like United Technologies Corporation (NYSE:UTX) and Ford Motor Company (NYSE:F) have been rushing to take advantage of the cheap peso by building and expanding factories there, in cities like Hermosillo and Monterrey, where there are skilled workers and good infrastructure that can get goods across the U.S. border within hours.
This is not good for those holding assets whose value is measured in Mexican currency, including holders of Mexican stocks. So a case for investing in Mexico rests, first, on the Peso. Stability is most prized there, and Hillary Clinton’s victory in her first debate lifted the currency, thus the value of Mexican stocks, as InvestorPlace’s Anthony Myrhaydari wrote recently.
But which Mexican stocks make sense in an American’s portfolio?
The following are some possibilities, some Mexican blue chips with good prospects. These Mexican stocks are all stable companies traded on U.S. exchanges, names you should know and which you may already be familiar with. They’re the investing equivalent of nachos, not insect tacos or tamales wrapped in banana leaves.
Mexican Stocks to Buy: America Movil SAB de CV (ADR) (AMX)
The first place to head in search of a Mexican profit is the New York Stock Exchange, where you can trade the country’s largest cellular phone company, American Movil SAB de CV (ADR) (NYSE:AMX). You can find the same company traded on the Nasdaq, under the symbol AMOV.
Mexico’s mobile market was underdeveloped for years, the result of an American Movil monopoly that did not end until 2013. Today, it remains the biggest player, with about 68% of the market, and 90% of its consumers have service thanks to prices that have fallen over 10% over the last year.
The number of mobile Internet users in Mexico is now over 60 million, and 74% of Internet users have smartphones.
With American Movil, moreover, you are not just buying into the Mexican mobile market. Nor are you just buying a mobile company. In Mexico, America Movil owns Telmex, the company’s main phone company, and its mobile unit is called Telcel. In other markets in Central and South America, its mobile units are operated under the name Claro. In Europe, it owns Telekom Austria and in the U.S., it has a mobile service unit called TracFone.
Carlos Slim Helu, worth an estimated $60 billion, remains chairman of America Movil, as well as Telmex, Samsung Mexico and the Grupo Carso conglomerate, which together represent 40% of the Mexican stock market’s market cap and 6% of the country’s GDP. His son, Carlos Slim Domit, is chairman of Grupo Carso.
AMX has been an active acquirer over the last few years, so while revenues were up 15% (in pesos) from 2012 to 2015, margins steadily declined and net income fell by two-thirds. The trend remained intact this year. Net income for the first two quarters, ending June 30, still trailed what was achieved in last year’s fourth quarter.
Still, you’re looking at a company that generated nearly $5 billion in operating cash flow over the last six months, and it now has no long-term debt, on over $75 billion in assets. Most analysts have it rated as a hold, and while it has lost half its value over the last five years — due to the weakening peso — that could turn around quickly if the currency does.
A stronger peso, in short, means a fatter Slim, and profits for those invested with him.
Mexican Stocks to Buy: Wal-Mart de Mexico S A B de C V (ADR) (WMMVY)
Wal-Mart Stores, Inc. (NYSE:WMT) and its Mexican counterpart, Wal-Mart de Mexico S A B de C V (ADR) (OTCMKTS:WMMVY) do not move in lockstep. WMMVY and WMT often contradict one another, due to the changing fortunes of the peso and the economies of Mexico and Central America.
During 2015, as the Mexican economy began to recover, the peso held steady, and the parent company seemed under threat from rivals like Target Corporation (NYSE:TGT) and Amazon.com, Inc. (NASDAQ:AMZN) shares in Wal-Mart de Mexico advanced, while WMT fell. Last year, with the peso’s fall accelerating, this reversed. This is true despite the fact that Walmart owns 60% of WMMVY. This is why, when Wal-Mart de Mexico was accused of bribery a few years ago, WMT’s image suffered as well.
Wal-Mart de Mexico does not just operate in Mexico, but throughout Central America, through Wal-Mart de Centroamerica. It operates small units like Bodega Aurrera as well as its larger formats, and their success may have encouraged the parent company’s management in its aborted creation of Neighborhood Markets and Walmart Express units in the United States. WMMVY is now the chain’s largest unit outside the U.S., operating over 2,300 stores in various formats, and it’s the biggest retailer in all of Latin America.
Despite its fluctuating stock price, Wal-Mart de Mexico has achieved steady sales growth, measured in local currency, and it usually brings 5% of revenue to the net income line, which is better than its parent’s normal 2% to 3%. The Mexican company carries much less debt than the parent, and its 40 billion pesos ($2 billion) in operating cash flow, achieved over the last two years, compares favorably with Walmart’s own $30 billion, given that WMT is 20 times bigger by revenue.
WMMVY admitted early in October that its sales growth slowed during the third quarter, to 9% year-over-year, but Walmart has no sales growth year-over-year. It recently sold its apparel company to a rival retailer, considering it a distraction, and analysts have been upgrading the stock with Goldman Sachs calling it a “buy” in June.
Should the peso begin to recover next year, look for WMMVY stock to be a star in any international portfolio.
Mexican Stocks to Buy: Grupo Televisa SAB (ADR) (TV)
Grupo Televisa SAB (ADR) (NYSE:TV) is more than a Mexican broadcaster. It’s also an important broadcaster in the U.S. through an arrangement with Univision. It is controlled by its founding Azcarraga family, now headed by Emilio Azcarraga Jean, who is credited with turning it around following the death of his father.
In addition to stations, cable operations and programming assets, TV owns a variety of assets, including the Club America soccer club and its Stadium Azteca, one of the world’s largest. It also has a new Spanish-language streaming service called blim.
Televisa grew 10% in 2015, bringing nearly 12% of revenue to its net income line, although its profitability is normally 5%. About half its assets are subject to debt, but cash flow is regularly above $500 million per year. TV stock has been bound inside a trading range over the last year, but given the behavior of the peso that should be counted as a victory.
Recently, the company signed a deal with NBCUniversal, a unit of Comcast Corporation (NASDAQ:CMCSA), to distribute its content through its new blim streaming service, which will compete directly with Netflix, Inc. (NASDAQ:NFLX). Competition between the two companies is intensifying.
TV is also feuding with Megacable (OTCMKTS:MHSDF), which serves 25 different Mexican states. Since announcing it would drop Televisa programming in early September, Megacable has disconnected 20 Televisa networks from its system. So far this has not affected analysts’ views on Megacable. Most analysts consider TV itself to be a hold.
A rising peso will help Televisa, but so would a quicker move among Mexican families, away from cable and toward alternatives like streaming. That seems to be what the company is betting on.
Mexican Stocks to Buy: Cemex SAB de CV (ADR) (CX)
Cemex SAB de CV (ADR) (NYSE:CX) is a multinational cement producer, operating in 50 different countries around the world, including the U.S.
As such, it is a bet on global growth and real estate investment. Since hitting a low in January, it is the best-performing company in this gallery, its ADR doubling in value despite the weak peso.
Profit rather than growth attracts investors to CX. Operating income more than doubled between 2012 and 2015, which finally resulted in a net profit that year. It is now bringing more than 16% of revenue to the operating income line, and in the June quarter achieved 3.7 billion pesos (about $185 million) in net income. This performance has drawn a flurry of buy recommendations, and 11 of the 19 analysts following the stock now consider it a buy. Goldman Sachs put a “buy” rating on the stock in September.
Cemex carries a heavy debt load — over 50% of its assets — and it has been selling assets in order to get that down. Most recently, it sold some assets in Ohio to Eagle Materials, Inc. (NYSE:EXP) for $400 million. Overall, CX wants to sell $1.5 to $2 billion in assets over the next year, cutting debt by $3 to $3.5 billion. The asset sales would bring total debt down by about 20%.
Not all the news from Cemex is good. It had to fire two executives last month in a scandal involving the location of a new plant in that country. The value of that unit, Cemex Latam Holdings SA, plunged as a result.
The moves to reduce debt and deal with corruption have many investors smiling on CX, seeing it as a good bet as the Mexican currency rises in value.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.
