The Short Case for Fomento Economico Mexicano

As I scanned the stock charts this week, I didn’t find any suitable low risk/high reward long trade setups. I did find a bunch of short sale candidates, I'm sorry to say for those who are looking to go long for some reason.

The “trend is your friend”, and long term the trend still looks down to me as many fundamental reasons will attest. And just because prices look cheap now, doesn’t mean it’s time to buy. Those low prices could still go lower, for the opposite reasons as those prices went higher and higher before.

Actually this stock pick of mine here has been going higher and higher since December 2007 unlike most of the US stocks heading south since New Years, although we’ve had an upward correction, which I would call a dead cat bounce. My opinion, it’s back down from here for awhile, but we’ll have to let time play it self out and see. Don’t you just love this speculation business? Buy sell, and don’t forget to use stop-loss to trade and invest another day.

Short Sell Fomento Economico Mexicano SAB de CV (FMX)

FMX Trade Setup:

- Accumulate sell positions at current prices of $46.70 up to $51.00.

- Stop-Loss at $52.15 to $56.90.

Take Profit Areas:

- Short Term $44.66.

- Intermediate Term $42.93.

- Long Term $39.65.

- Longer Term $37.93.

FMX Company Profile

Foment Economico Mexicano SAB de CV [FEMSA] is a Mexico-based holding company engaged in beverage sector. It operates through subsidiaries, including Coca-Cola FEMSA SA de CV, FEMSA Cerveza SA de CV, FEMSA Comercio SA de CV. Coca-Cola FEMSA SA de CV is engaged in the production, distribution and marketing of certain Coca-Cola trademark beverages in Mexico, Guatemala, Nicaragua, Venezuela, Colombia, Brazil, Costa Rica, Panama and Argentina. FEMSA Cerveza SA de CV produces, distributes and markets various beer brands in Mexico and Brasil. FEMSA Comercio SA de CV is engaged in the operation of the chain of OXXO convenience stores. As of December 31, 2007 FEMSA Comercio SA de CV operated 5,563 stores in the main cities of Mexico. The Company is headquartered in Monterrey, Mexico.

My Analysis to Short Sell FMX

On a fundamental basis, FMX price to earnings ratio is 123.49 and the industries PE is 41.91. I know the emerging markets are growing strong, but this PE is excessive in the short and intermediate term in my opinion. I would be a possible buyer when earnings increase or the stock price decreases, or both. Right now that magic point for me would be under $40.00 a share. If earnings to catch up, the raise that buy price target proportionally.

On the hype basis, when I see most of the analysts recommending buying this stock, I start to get interested in selling it. Remember when some big brokerage was recommending a buy on a stock, and the price started heading south right after you bought it? I do. Live and learn or go bust.

On a technical basis, I see FMX completing its 5th wave in the long intermediate and short term. So my main reason for selling it at current prices, and if the price keeps going up, accumulating more sell positions at higher prices in this stock. See my FMX Trade Setup information above. For those who don’t know “The Waves” thing, I’m speaking of Elliott Wave Analysis. Its trading based on human emotion and psychology. History repeats it itself people, and you can book profits on it all the way to the bank.

Disclosure: Short

Comments

[crimfunk:]

Looks like a rotten short. The Modelo mess should help FEMSA's volume, realized pricing, improved operating leverage and profit margins. Bottom line s/t valuation should increase.

Oh and that “The Waves” thing I saw huge volume supporting a P&F breakout with a target of $61. Not even close to being overbough

“http://stockcharts.co...

2008 May 27 12:06 PM

[crimfunk:]

oh and last Q every FMX division contributed with at least 20%+EBITDA growth

2008 May 27 12:12 PM

[Michael Mic...:]

FMX short looking good so far. I'll post here, when we've closed this short position.

2008 May 28 09:13 AM

[crimfunk:]

Getting killed today +1.15 2.48%; 52 week high. Gonna breakout better cover

2008 May 29 11:53 AM

[User 202477:]

Your P/E numbers are completely off.

2008 May 30 01:54 PM

[User 204422:]

a/c long 5-29 @ 47.41 w\ sell stop @ 44.15. w/ the wk. i might move the sl. stp. up. tku for your short vs my lng.this s/b fun.

2008 Jun 02 05:38 PM

[Michael Mic...:]

FMX is down almost 2% today at about $45.62. We are still short. We are a buyer at 38 to 40. Bill Gates owns this stock I just found out. For whatever thats worth. I like the stock longer term. Right now, we are betting it takes the correction as we explained above.

2008 Jun 03 11:35 AM

[Michael Mic...:]

Just covered FMX short with 3.5% booked. Still think its headed to 40 or below.

2008 Jun 05 10:04 AM

[Denallen:]

I spent 6 weeks in Mexico recently. Here's what I observed.
A rising middle class of Mexicans spilling in and out of the OXXO convenience stores with beer, soda, chips and other convenience items.
FEMSA generates cash, cash and more cash and... they brew some of the best Mexican beers.
Don't short this growth company. Buy, hold, buy more on dips and GROW, in time, with this company.

2008 Jun 10 12:00 PM