Ask the average American what they think of Mexico and the words violence and drug cartels are likely to be at the forefront of the conversation. Or possibly, export-oriented businesses on the border sending cheap goods to the United States. Even investors may only remember the brutal 6 percent contraction in Mexico's GDP in 2009.
But from an investment viewpoint today, a very different Mexico appears. What appears is an economy that is expected to grow at nearly a 4 percent rate this year, nearly double the country's average annual growth rate of the past decade. There are even some stock market analysts who believe that Mexico will overtake Brazil as Latin America's largest economy before the end of the decade. For equity investors, the Mexican stock market bull has charged ahead this year, bursting through the 40,000-level for the first time ever in June and which hit an all-time high in July.
So what Mexican companies should American investors put their money into? Probably the best equities to put money into are the Mexican multinationals which recently have gone through a major expansion push into the United States. According to data from the U.S. Department of Commerce, between 2006 and 2011, direct investment from Mexico into the U.S. came to $8.4 billion, the highest ever for a six-year period.
Among the most well-known of the multinationals is Carlos Slim's America Movil ADR (AMX) which now has operations in most of Latin America including Brazil. It has pushed into the U.S. too through its subsidiary TracFone which is the leading national pre-paid wireless service. From just 134,000 customers in 1999, TracFone now has more than 21.3 million customers. But America Movil is hardly alone in its move into the U.S. market.
Grupo Televisa S.A.B. ADR (TV) raised its exposure to the U.S. in 2010 with its $1.2 billion investment into Univision, the largest Spanish-language network in the United States and one of the top 5 television networks. The company recently has decided to bring soap operas, called telenovelas, to the U.S. because the company believes these type of stories translate well across all cultures.
Cemex S.A.B. de C.V. ADR (CX), the Mexican cement and building materials manufacturer, is now the largest producer in its sector in the United States with a 10.5 percent share of a very fragmented market. Of course, the company paid a high price to gain market share as it is burdened with high amounts of debt. The company did, however, recently make some progress on that front with a debt refinancing deal.
Perhaps the best known of the Mexican multinationals to most U.S. consumers is Grupo Modelo S.A.B. ADR (GPMCY.PK), the maker of Corona Extra beer. Corona is now the best selling imported beer in the United States, a distinction it has held since 1997. It is also one of the top five selling beers in the world and is available in over 150 countries.
The reason behind Mexican multinationals' push into the United States is obvious ... demographics. Already Hispanics account for roughly 16 percent of the population and 1 in 4 people under the age of 20 in the U.S. is Hispanic. Estimates are that by 2050, 30 percent of the U.S. population, or 125 million people, will be Hispanic.
And most importantly, an estimate from the University of Georgia shows that from a mere $800 million in purchasing power in 2009, Hispanics will have purchasing power in excess of $1.3 trillion by the end of next year. That is music to the ears of the Mexican multinationals muscling into the U.S. market.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.