The announcement of the United States-Mexico Trade Agreement brought relief to many companies. Due to the North American Free Trade Agreement (NAFTA), many companies in both the United States and Mexico had made substantial cross-border investments. The Trump Administration’s moves to push NAFTA aside stoked fear on both sides of the border. Now, with a new agreement in place, the rules involving trade and cross-border business ventures should become clearer. This reduced uncertainty should help Mexican stocks.
Despite decades of widespread trade, many Mexican stocks trade only on the Bolsa Mexicana de Valores, more commonly called the Mexican Bolsa north of the border. Moreover, most of what we know about this agreement so far centers on the auto industry. Still, an agreement returns a sense of certainty that a possible dissolution of NAFTA called into question. It also could help some Mexican stocks which trade on U.S. markets, but have seen years of stagnation.
Investors should look to these 5 Mexican stocks as a new trade deal takes shape.
Mexican Stocks to Buy: América Móvil (AMX)
As Latin America’s largest carrier, Mexico City-based América Móvil (NYSE:AMX) stands out among Mexican stocks. AMX is one of Mexico’s largest companies and has grown into the fourth largest telecom company in the world. It operates in many Latin American and Caribbean countries and maintains operations in both Europe and the U.S. Its U.S. subsidiary, Tracfone Wireless, has become one of the largest pre-paid wireless services in the country.
América Móvil once served as the wireless division of Teléfonos de México, better known as Telmex, the one-time Mexican telecom monopoly. Telmex spun off América Móvil in 2001. After the spin-off, AMX grew much faster, so much so that it acquired Telmex in 2010. This was orchestrated by Mexican billionaire Carlos Slim. Mr. Slim made his fortune when Telmex first spun off from Mexican government control. He later orchestrated the takeover of Telmex by América Móvil.
Like its American peers, AMX has focused on an upgrade to wireless service. Early this year, the company set a goal of rolling out 4.5G wireless in 76 Mexican cities by the end of 2018. This should set the stage for a 5G rollout by 2020. Despite the costs of this deployment, analysts expect profits to continue rising. They predict profits will increase by 36.7% this year. Over the next five years, they believe profits will grow by an average of 18.6% per year.
Moreover, with 93 cents per share in earnings expected, AMX enjoys a forward price-to-earnings (P/E) ratio of 18.7. Unfortunately, the stock has seen little upward movement over the past 12 years. Falling profits earlier in the decade weighed on AMX stock. However, given the growth coming from 5G and the valuation, the company should finally have the needed catalyst to move the stock higher.
Mexican Stocks to Buy: Cemex (CX)
Based near Monterrey, Mexico, Cemex (NYSE:CX) has grown into the second-largest building materials company in the world. Its Mexico and U.S. operations account for slightly more than half of the company’s revenue. Cemex operates in over 50 countries.
Despite its size, CX stock has gained little traction over the last 10 years. A peso devaluation in 2008 forced the company to sell assets to refinance debt. High debt levels and losses plagued the company for years after that. However, in 2015, Cemex turned profitable. Profits have grown every year since. Analysts expect profits to increase by 30% this year. CX also expects to maintain an average of 12.7% growth per year over the next five years.
This could give CX stock the growth catalyst it has long needed to begin moving higher again. Cemex will need growth to succeed. Despite the improved outlook, the company still holds about $11 billion debt, a heavy burden when the current market cap also stands at about $11 billion.
Still, its growing profits have taken the company’s forward P/E down to about 14. A 12.7% profit growth rate would double profits every six years. Moreover, Cemex’s debt levels have fallen over the last three years. With rising profits and declining debt, CX stock now enjoys a clear path back to financial stability. As long as the company stays on its path, CX stock can see something it has not seen for many years –stock price appreciation.
Mexican Stocks to Buy: Grupo Televisa (TV)
Grupo Televisa (NYSE:TV) is the largest media company in the Spanish-speaking world. It is immensely popular throughout Latin America and the Latino community in the U.S. While many Americans may not recognize the Grupo Televisa name, they likely know its two Spanish-language channels, Univision and Telemundo.
Within the U.S., its channels remain popular among Spanish-speaking residents. However, they have also begun to venture into English-language programming as some Latino-Americans turn away from Spanish.
Like many Mexican equities, TV stock struggled for most of the decade. Despite large moves up and down, Grupo Televisa trades at just over 30 times forward earnings. At first glance, that appears high for a stock that has seen little upward movement over the last few years. The 52-week low of $14.20 placed the stock at levels not seen since 2009.
However, its streak of falling profit growth appears to have ended. Wall Street forecasts 65.9% profit growth this year. They expect that to slow to 2.9% in 2019. However, over the next five years, they predict average annual profit growth of just over 27%. Since that March low, the stock price peaked at $21.41 per share before falling back to the $18 per share level. Still, if the stock price can hold and then rise from current levels, we might finally witness the recovery of TV stock.
Mexican Stocks to Buy: Industrias Bachoco (IBA)
Source: Steve Isaacson via Vlickr
Based in Celaya, Mexico, Bachoco (NYSE:IBA) operates as the largest producer of poultry in Mexico. It also produced feed and other meat products. Though Mexico remains its largest market, it also owns a large operation in the United States. It centers its U.S. production around its OK Foods subsidiary. Bachoco purchased Arkansas-based OK in 2011 and left the name in place within its American market. The company also bought Albertville Foods in 2017. Today, Albertville operates as a subsidiary of OK Foods.
In both the U.S. and Mexico, IBA utilizes multiple distribution channels. Bachoco operates over 1,000 facilities. As such, it has positioned itself to serve the wholesale, retail and supermarkets who make up many of Bachoco’s direct customers.
From a trade standpoint, Bachoco could also help to ease the worker shortage that currently plagues the U.S. farm industry. Less than 2% of America’s workforce works in the industry and many of these workers are nearing retirement. This compares to over 13% in Mexico. If America’s shortage of farmers becomes more acute, companies like Bachoco can more easily help with a trade agreement in place.
IBA stock trades at a forward P/E of around 12.4. Profits fell this year, although analysts predict an average of 6.7% earnings growth per year over the next five years. It also maintains a AAA credit rating within Mexico, making it stand out among Mexican stocks.
Single-digit profit growth may not excite investors. However, for those looking for a conservative investment in a stable company that plays a critical role in the food supply, Bachoco remains a solid choice.
Mexican Stocks to Buy: Southern Copper Corporation (SCCO)
Though technically based in Phoenix, Southern Copper (NYSE:SCCO) investors should consider this among Mexican stocks. Southern Copper operates a subsidiary held by Mexico City-based mining company Grupo Mexico (OTCMKTS:GMBXF). Grupo Mexico bought controlling interest in the company then known as Southern Peru Copper Corporation in 2005. Today, it owns 88.9% of the company’s shares.
All of the company’s largest mines are located in Mexico and Peru. However, it has begun to explore for more sources of copper in Chile. As the name implies, copper serves as its most frequently-produced product. However, it also produces substantial quantities of molybdenum, zinc and silver.
Since hitting a low of $21.55 per share in early 2016, SCCO stock has moved as high as $58.09 per share in April. Since April, it has fallen into bear market territory. Today, it trades at just above $45 per share.
However, this drop has taken the forward P/E ratio to about 18.75. This comes in lower than the 26.6 average P/E that SCCO stock has seen over the last five years. While investors wait for the stock to return to its average P/E, they can enjoy a dividend yield of about 3.5%.
Also, much of the latest trade agreement centers around auto production. As it happens, building cars depends heavily on the copper that the company produces. Hence, the trade agreement should remove a significant source of uncertainty for the company.
Still, Wall Street expects profits to grow by 160% this year. Though they predict only 13.9% growth next year, they forecast the average five-year growth rate at 36.7%. As long as copper prices can avoid a crash, SCCO stock should perform well for the foreseeable future.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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