Should You Buy Mexican Stocks? (ALSEA, AGUA, and Airports)
Do not fear investing outside of the United States. Fear overpriced stocks
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This week, we released an episode with Ian Bezek from Ian’s Insider Corner, which you should of course subscribe to:
I like to think of Ian as our Latin American stock correspondent. He has a vast knowledge on the various countries and a good knack at finding dirt cheap stocks that are actually investable.
He believes Mexico is offering some major discounts for investors, especially vs. the U.S. stock market.
These were my bullet point show notes from the interview:
The Mexican Election and Expectations for the New Administration
Foreign Direct Investment and Nearshoring in Mexico
Investment Ideas: Airports and Grupo Rotoplas
Margin Expansion and Pricing Power of Mexican Companies
Capital Allocation and Dividend Policy of Mexican Companies
The Privatization of Airports in Mexico
A Fast-Food Franchise Operator in Mexico
Understanding the Changing Dynamics of the Mexican Market
Consumer-Related Companies as Investment Opportunities in Mexico
If any of these topics interest you, I hope you’ll give this podcast a listen. The country is not as dangerous (literally, and figuratively for investors) as you think.
Using our friends at Finchat.io, let’s look at two stocks Ian discussed: Alsea and Grupo Rotoplas.
Alsea operates Domino’s, Starbucks, and Burger King franchises in Latin America and Europe. It is mainly focused on Mexico.
The company has generated healthy amounts of operating earnings and free cash flow since the pandemic downturn:
The current market cap is $45 billion in Mexican Pesos. That is around 5x its trailing operating earnings. Even with a good amount of debt on the balance sheet, this looks like a potential bargain.
Fast food penetration should only grow in Latin America as more and more citizens are able to afford regularly eating at restaurants.
The stock also pays a dividend yielding 2%.
Grupo Rotoplas (ticker AGUA) does water storage and filtration in Mexico. A pretty important task given how water deprived and populated the country is. If the country is going to make the next step in wealth/income and greatly increase its manufacturing capacity, Grupo Rotoplas will play a part.
The company generates healthy amounts of operating earnings and free cash flow:
It has a market cap of $12 billion (Mexican pesos), meaning it trades at around 8x operating earnings according to Finchat.io.
Of course, a cheap trailing earnings is just one fact to consider before investing in a stock.But it does indicate a breadth of potentially cheap stocks in Mexico. Which is what we discuss with Ian this week. Better than a single-digit revenue grower at over 50x earnings in the United States.
Don’t be afraid to invest in Mexico. There could be a lot of returns to be had if this reshoring theme has any legs.
Have a great weekend everyone!
Brett
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Alsea does look very attractively priced.