In honor of Cinco de Mayo—which celebrates Mexico’s victory over French forces at the Battle of Puebla in 1862—I’d like to feature some of Mexico’s largest publicly traded companies today. But first, let’s get a 30,000 foot view of Mexico’s economy. The bad news (at least for Mexican importers) is that the Mexican peso has fallen 15% against the dollar in the past year, and by 5% year-to-date. In addition, falling oil prices have hurt Mexico’s oil exports, which account for nearly a third of government revenues. The good news is that Mexico’s economy is expected to expand between 2.5% and 3.5% this year, higher than the 2.1% annual growth posted for 2014.
The uncertain economic situation has left many of Mexico’s largest businesses on a shaky footy. As a result, many of Mexico’s largest publicly traded ADRs (American Depositary Receipts) currently earn a C-rating (or worse) in Portfolio Grader:
|Ticker||Company Name||Quantitative Grade||Fundamental Grade||Total Grade|
|ASR||Grupo Aeroportuario del Sureste||C||C||Hold|
|BSMX||Grupo Financiero Santander Mexico||F||D||Sell|
|KOF||Coca-Cola FEMSA||F||C||Strong Sell|
|PAC||Grupo Aeroportuario del Pacifico||B||C||Hold|
|TV||Grupo Televisa S.A.B.||D||C||Hold|
However, that’s not to say that there aren’t any investing opportunities in Mexico. In fact, one of my top large-cap stocks has strong ties to Mexico:
Constellation Brands Inc. (STZ) is one of the leading wine, beer and spirits companies in the world. It is part of the S&P 500 Index and is a Fortune 1000 company. Constellation Brands is the top premium wine producer in the world, the top beer importer, and the number three beer company in the U.S. In total, STZ has more than 100 brands, sells its products in approximately 100 countries and operates 40 facilities around the world. I’m sure many of its brands are familiar names to you, such as Robert Mondavi wines, SVEDKA Vokda and Corona beers. The company has had an impressive run, due to a one-two punch of strengthening its existing brands and introducing new products, as well as solid growth in the wine industry. But I see plenty of further upside from here, and that’s because of its newly consolidated beer business, Crown.
In summer 2013, Constellation brands completed its acquisition of Grupo Modelo’s U.S. beer business for $4.75 billion. So Constellation Brands now has exclusive rights to sell Grupo Modelo’s beer brands in the U.S.: Corona, Corona Light, Modelo Especial, and Negra Modelo. This, among other things, has helped Constellation Brands outperform the U.S. beer industry in sales for the past five years running.
Just a few weeks ago, Constellation Brands announced bottom-line results that trounced expectations for the fiscal fourth quarter. Compared with the year ago quarter, net income improved 37% to $215 million, or $1.06 per share. Excluding special items, adjusted earnings were $1.03 per share, which beat the $0.94 consensus EPS estimate by nearly 10%. Over the same period, net sales climbed 5% to $1.36 billion, in line with expectations. Thanks to strong Corona and Modelo sales, fourth-quarter beer sales rose 11% over last year. Meanwhile, wine and spirit net sales were flat with last year. Looking ahead to FY 2016, management sees adjusted earnings in a range of $4.70 to $4.90 per share. This is in line with analysts’ expectations of $4.85 per share.
I consider STZ an excellent buy, especially if you’re looking to add a few strong Mexican brands to your portfolio.
P.S. I will be speaking at the JW Marriott Atlanta in Atlanta, Georgia, tonight, May 5. This seminar starts at 7 P.M. and you may attend at no cost, but please call 800-454-1395 to register. I will review where investors can achieve the highest yields in both bonds and stocks, as well my current market outlook, favorite stock picks and have an extensive question-and-answer session.
P.P.S. In just a few weeks, I’ll be attending The MoneyShow in Las Vegas, May 12 -14…and I’d love to see you there! I always look forward to meeting with you and our fellow subscribers face to face, and admission to the show is free. Simply call 800/970-4355 (be sure to mention priority code # 038778), or visit: https://secure.moneyshow.com/msc/lvms/registration.asp?sid=LVMS15&newReg=t&scode=%20038778.