Bloomberg Opinion columnist Eduardo Porter, who covers Latin America for the publication, recently wondered if Mexico could find a way to true prosperity.
For example, the country’s gross domestic product (GDP) is up to 35%, a distinctive rise from the 5% export status in 1990. Unfortunately, the people of Mexico didn’t benefit from the export growth. Between 1990 and 2018, its GDP per capita rose slightly more than 1% annually for nearly three decades.
The problem with Mexico’s new economy is that corruption has stifled any benefits of thinking and trading more liberally. Out of 17 Latin American countries, only Bolivia is considered more corrupt. According to World Justice Project data, even Venezuela is considered slightly less corrupt than Mexico.
Porter’s editorial is a sad but true reflection that shows little hope for the people of Mexico.
However, when it comes to Mexican businesses operating internationally, improvements are continual. Based on this optimism, let’s examine three Mexico stocks to buy from the iShares MSCI Mexico ETF (NYSEARCA:EWW).
Grupo Financiero Banorte (GBOOY)
Grupo Financiero Banorte (OTCMKTS:GBOOY) is the largest holding in EWW with an 11.33% weighting, and Mexico’s second-largest financial institution, based on its loan portfolio.
It’s the only commercial bank amongst the six largest based in Mexico. GBOOY owns 50% of Afore XXI Banorte, the country’s largest retirement fund administrator by assets under management.
It finished Q2 with loans of 966.5 billion Mexican pesos ($54.6 billion), with 42% being residential mortgages, auto loans, credit cards, and payroll loans. The rest were either commercial or government loans. At quarter’s end, deposits were 982.4 billion Mexican pesos ($55.5 billion).
The first of two fascinating data points from the second quarter is its net interest margin (6.5%). The net interest margin is defined as interest income less interest divided by the earning assets. For example, JPMorgan Chase & Co.’s (NYSE:JPM) net interest margin (NIM) as of June 30 was 3.37%. Grupo Financiero Banorte’s is almost double that amount.
The next impressive data point is the bank’s efficiency ratio of (34.1%). This is defined as its non-interest expenses divided by revenue. It’s meant to demonstrate a bank’s level of control over its operating expenses. Lower is better. In contrast to GBOOY, JPMorgan’s was 50.0% in Q2 2023.
Femsa (FMX)
Femsa (NYSE:FMX) is the second-largest holding of EWW with an 11.13% weighting. Its shares have been traded as American Depositary Receipts (ADRs) on the NYSE since 1998. However, its history dates back to 1890.
Impressively, the company has four operating units. Retail comprises 23,500+ OXXO convenience stores in Mexico and Latin America. OXXO gas stations, Valora convenience stores (Europe), and 640 drug stores (Mexico, Chile, Colombia, and Ecuador) operate under the Cruz Verde and Yza brands.
Femsa has a 47.2% economic interest in Coca-Cola FEMSA (NYSE:KOF), the world’s largest Coca-Cola (NYSE:KO) bottler by sales volume worldwide. It holds 56% of the votes, controlling its operations.
Its Digital Femsa unit provides tech solutions to both third-party customers and internal Femsa entities. These include Solistica and Envoy Solutions, providing specialty distribution services to companies throughout North America.The two entities have grown their revenue by 129% over the past two years.
Lastly, nearly 75% of its stock is controlled by a voting trust held by the founding families, the essence of a family-controlled business.
Grupo Aeroportuario del Pacifico (PAC)
Grupo Aeroportuario del Pacifico (NYSE:PAC) is the seventh-largest holding of EWW with a 3.57% weighting.
With twelve airports in Mexico and two in Jamaica, it operates them under 50-year concessions from the Mexican government, which owns all of the airports in Mexico. These concessions run through 2048.
In 2022, PAC held 31% of the market share of airport traffic through Mexican airports. In Jamaica, it handles almost 100% of the traffic in or out of the country. Also, it generated 22.5 billion Mexican pesos ($1.27 billion) in revenue, with an EBITDA margin of nearly 72% and net margin of 40.9%.
Post-pandemic, domestic and international passenger traffic is busier than ever. Its most industrious airport in 2022 was in Guadalajara, handling 15.6 million passengers.Tijuana (12.3 million) and Los Cabos (7.0 million) came in at second and third place.
PAC shares are up nearly 17% in 2023 and 58% over the past five years.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
