Every few weeks, another major manufacturer announces plans to
shut down production in China and bring jobs closer to home. Some
companies such as
aim to boost production in the United States (GE will make hot
water heaters in Kentucky, for example). That's because China is no
longer the bargain it once was, thanks to a rising
and a strengthening
. It's important for investors to be aware of this trend, because
economists say it will only build in the years to come, as China's
wages and currency are expected to rise even higher.
Perhaps the greatest beneficiary of this trend will be Mexico,
which will always remain a low-cost environment for manufacturers.
North American Free Trade Agreement (NAFTA)
was ratified in 1994, Mexico has seen a steady rise in goods
shipped north of the border. More than 70% of Mexico's exports head
to the United States, and that figure is expected to hit 75% in
2012. It's telling that even as global economies slumped in 2011,
Mexico's exports still rose 13% to $336 billion, according to the
CIA World Factbook.
Perhaps the clearest sign of increased economic activity can be
seen in airport traffic.
Aeroporuario del Sureste (NYSE:
, which operates nine regional airports, recently announced that
passenger traffic rose 10% in January from a year earlier. Business
executives scoping out new manufacturing opportunities are likely
part of that spike.
Rising exports are creating myriad benefits from Mexico. First,
thousands of workers are finding jobs in factories each year,
pushing them from subsistence living into the lower middle class.
That boosts demand for all consumer-facing businesses. Second, the
firms that transport goods are seeing a rise in business. Lastly,
the government is able to secure rising tax receipts, which is
crucial when you consider that government-owned energy giant Pemex
is seeing falling output in key energy fields, leading to reduced
remittances to the government.
These three investments are a great way to play the surging Mexican
1. Celadon Group (NYSE:
This U.S.-based trucking and
firm operates six freight terminals across Mexico, augmenting its
11 terminals spread across the United States and Canada.
Moving goods across the border used to be quite costly for Celadon
(and its customers), as Mexican drivers were prohibited from
driving freight more than 16 miles into the United States. Thanks
to new legislation enacted last spring, that restriction has been
dropped, helping Celadon and its peers to better compete with
rail-focused freight carriers.
Sterne Agee calls Celadon a "prime way to invest in the
re-energized Mexican manufacturing
." The firm expects the lower costs associated with Mexican border
crossing arrangements to steadily boost profits. They estimate
will rise from $23 million in fiscal (June) 2011 to $35 million
this year and $44 million in fiscal 2013.
have posted a recent rebound but still remain roughly 20% below
Sterne Agee's $18 target price.
2. NI Holdings (Nasdaq:
This company, formerly known as Nextel International, is a major
wireless phone service provider in Mexico, Brazil, Peru and
Argentina. Its push-to-talk service has made it a big hit with
business customers, helping NI Holdings to garner an
industry-leading $50 in monthly ARPU (Average Revenue Per User).
The company's focus on corporate customers should continue to pay
off as more multinational firms develop facilities in the region.
NI is now investing in 3G Spectrum in each of these countries in
order to tap into data-happy consumer markets. Meanwhile, shares
have fallen almost 50% from their
on fears that price wars will sap margins. The company's decision
to ramp up marketing expenses to maintain
didn't sit well with investors, though. Yet a recent spate of
insider buying helps underscore the notion that
fears may be overblown. Six insiders bought a collective $2 million
worth of stock in the past two months. Analysts note that at less
than four times trailing
, NI Holdings is the most inexpensive stock in its peer
3. Grupo Televisa (NYSE:
This media firm has seen its shares drift from $30 to $20 in the
past five years, even as its long-term outlook has never been
brighter. A rising middle class that is being created from all of
the new manufacturing jobs is helping boost ad rates for firms like
Televisa, which is the largest producer of Spanish language content
in the world.
Televisa is also looking to tap into the English-speaking Hispanic
in the United States, as second-generation Mexican-Americans seek
more programming in English. That's a wise move, because the Latino
portion of U.S. society is the fastest-growing demographic group.
Televisa's exposure to Spanish speakers and English speakers helps
create a broader and more compelling platform for advertisers that
want to develop cross-border ad campaigns.
Risks to Consider:
When the U.S. sneezes, Mexico catches a very bad cold. The
country's economy is increasingly dependent on the U.S. for trade,
and a slowdown in economic activity here would be deeply felt
across the border.
Action to Take -->
All three of these companies stand to benefit from Mexico's coming
growth spurt. Investors that simply want broad-based exposure to
the economy should consider a low cost
exchange-traded fund (
such as the
iShares MSCI Mexico InvestableMarket Index (NYSE:
The Global X Mexico Small cap ETF (Nasdaq:
, which was launched last spring, has a very appealing focus on
Mexico's smaller, faster-growing companies. This ETF is still too
and immature to recommend at this point -- but surely worth
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-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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