MexCom's  Instablog

Haven't you heard?

Ever since the Surgeon General's Report on Cigarettes and Cancer over 35 years ago, World-wide cigarette consumption has more than doubled. (Also research how well the prices of tobacco stocks have done.)

Tobacco consumption has the longest up trend in the history of mankind. Tobacco is income elastic. This means as more poor countries develop their economies and grow (think China, India, Etc.) growing populations spend more (a greater percentage of their total income) on tobacco.

I also own VGR Vector Group.  Great dividends. I have been profiting from them for many years in all different types of economies.

BTW on the morality argument against tobacco - people in the fastest growing countries have life expectancies less than 50 years. They are dieing from starvation - not lung cancer.  Some of these countries are land locked and find that tobacco provides employment in this labor intensive industry providing cash wages to buy better nutrition.  It also allows for the valuable foreign exchange earnings for farmers to grow more staple food crops. 

 

GMK – Gruma Staged a sharp reversal today (10/28/09.) The reversal came on strong volume after seeing the price down over 10% for the ADRs.  If this higher level holds, it would be painting a hammer candle bottom on the chart signaling a buy for technical traders.   

Fundamentally, an earnings report is expected prior to an announced conference call scheduled for 12:00 on 10/29/09.  Even if its only a ho hum report, a lot of worry will be wiped out to build renewed confidence in this company’s recovery from the derivatives fiasco of last year.   

Tomorrow’s conference call could be pivotal but renewed confidence when built if not immediately, over the next few trading days, the fundamental growth prospects should take hold.  My immediate look at the recently announced financing indicates no sharp decline in earnings for the previous quarter .  The rates of interest recently negotiated are approximately the same as has been paid thus far this year.  

For the future, much is dependent on LIBOR and the TIIE rate that could escalate to make the rates paid by the company higher.  The recently announced financing rates are approximately 2.875% above these base rates.  The amortization of these loans will not impact until next year but the derivatives loss has already been taken. 

It will be interesting to hear if analysts during tomorrow's call ask about prospects for a dividend.   My take on it that the loan agreements come with covenants that would restrict dividend payments.  As these loans get amortized, the asset side of the balance sheet will improve boosting stockholder's equity and the credit worthiness of the company and greatly improve prospects to pay a dividend.

Stay tuned for my take on the CC.  No need to go to try to find excitement anywhere else - there is plenty right here.

My September 24 prediction is getting close to fruition.  Today's market was strong initially but got hit by concerns over US executive pay.  Overall the technical vulnerability was looking for an excuse and gains got hit.

Mexican stocks did not get hit as hard as most US issues but it could be a delayed action to possibly expect decline tomorrow.  This would be a grand opportunity to load up on Gruma.

I bought some today on margin before the decline and sold off stocks where I had nice profits in my tax protected IRA account.  This make me ready to buy on any sharp decline.

Long-term Gruma seems ready to be a grand story for growth and payment of dividends.  The top line growth is impressive.  Popularity of Mexican foods world wide and Latin population growth now makes it a rather conservative play.

Some interesting research done today with confirmation needed is the degree of institutional ownership.  The latest stats on Yahoo has it only 3%.  This is compared to the Mexican blue chips favored my the mutual funds such as Cemex, TMX, AMX, HMX & KOF.  AS much as 54% of these companies are institutionally owned.  Its a curiosity that several are exactly at the 54% level making me wonder if there is some restriction on institutional ownership of Mexican companies right at the 54% level.  With GMK only 3% owned by them and with the limelight to now shine on Gruma to potentially reach blue chip status in years to come, there will be a strong demand from these international funds to buy.  As Gruma become more important in the Bolsa stats and possibly the index of that market's performance, these funds will be compelled to buy it.

The weak dollar and increasing interest in international investing is a more immediate demand factor on the buy side for Gruma.

I view the potential for a decline tomorrow to be a grand opportunity that comes along only rarely in an investor's career.  We have gotten past the fear of bankruptcy now but full valuation is still to be computed and considered by the analysts.  Banamex already came out with a bullish forecast.  

As long as time is on your side.  GMK is an excellent long-term play to participate in the Mexican market in what I view as a fairly conservative speculation that can re-double again if not more immediate within a 5-year period where a dividend may payout before then.

Disclosure:  I am long in all my family accounts with Gruma and bought additional shares today.