Earlier this week, I briefed you on all that you need to know about China’s and Japan’s respective economies, and which stocks I considered to be the best profit opportunities there. In this special feature, we’ll be travelling to the other side of the globe, to Latin America’s second largest economy.
Lately, Mexico’s economy hasn’t received as much media attention as China or Japan, but it has gotten caught up in many of the same macroeconomic forces. After all, Mexico is the tenth-largest oil producer in the world, accounting for over a tenth of U.S. crude oil imports. As a result, energy is big business in Mexico. And while Mexico’s crude oil production has actually declined over the past decade, the supply glut caused by other players has weighed on prices in Mexico.
Meanwhile, as a key trading partner with the United States, Mexico is also feeling the pinch of the stronger U.S. dollar. Over the past 12 months, the Mexican peso has fallen over 16%; over the past two years it has plunged nearly 30%. Considering that Mexico has experienced triple-digit inflation in the past, this trend has caused some nervousness.
Nonetheless, there are bright spots in the Mexican economy. Last year, Mexico’s Gross Domestic Product (GDP) rose 2.6%. In 2016, economists expect the pace to pick up to 3.2%. This growth is expected to be driven by growing construction activity, increased business investment and accelerating manufacturing activity. As a result, economists are looking for Mexico’s labor market to grow, along with household income and consumer spending. And, despite the peso’s slide against the dollar, inflation in Mexico has remained below the government’s threshold of 3%.
Now, I’d still like to play it safe with Mexico. The fact remains that the Mexican peso is still very weak, and that’s a major factor when selecting stocks from that region. So my Ultimate Growth Buy List currently has just one stock from Mexico…
Top Stock: Volaris Aviation
Volaris Aviation Holding Company (VLRS) is essentially the Spirit Airlines of Mexico. The company is a discount airline, operating about 230 low-cost flights daily in Mexico, Central America and the United States. Currently, Volaris has the youngest fleet of aircrafts in Mexico, with its planes averaging about four years in service. The company’s fleet of 56 Airbus aircraft covers 270 daily flights that connect 40 destinations in Mexico and 21 destinations in the United States.
Just last week, Volaris released fourth-quarter and full-year 2015 results. The Mexican airline reported fourth-quarter net income of $0.38 per share on $296 million in revenue. That topped analysts’ earnings estimates for $0.27 per share by a whopping 40.7%, and also topped sales estimates for $257.71 million. For full-year 2015, Volaris reported total operating revenues of $1.06 billion, and earnings per share of $1.42.
And Volaris is ready for take-off this quarter. Analysts are calling for 3.2% annual sales growth and 20% earnings growth. However, given Volaris’ history of stunning earnings surprises, I expect it to do even better.
Keeping this in mind, it’s not suprising that VLRS has risen over 26% since I added it to the Ultimate Growth Buy List in October. But I see plenty of potential upside from here; VLRS still trades at less than 14 times forecasted earnings. I consider VLRS an A-rated Strong Buy.
That wraps up my three-part series of top stocks from around the world. Tomorrow, I’ll be back in touch with a briefing of all of the latest economic news from the past week.