Well, the fiscal cliff talks have resulted in a compromise—and though the bill has naysayers on both sides, the market seems to like that Congress came to a decision at all, rallying 2.54% on Jan. 2.
Click to EnlargeBut traders shouldn’t take this deal as a cure-all. As the new deadlines created in this fiscal cliff deal approach, there’s the potential for more self-imposed crises to roil the U.S. market. As shown by the way the Vanguard FTSE All-World ex-US ETF (NYSE:VEU) is outpacing the S&P 500, it’s clear that stocks in the developed and emerging markets outside the United States are growing at a much faster rate that U.S. stocks. That’s why I’m looking toward well-run consumer goods companies in these fast-growing regions for some diversification.
Now, in line with my preference for overseas markets, consumer staples, and managements with a brain and a long time at the wheel, I bring you Fomento Economico Mexicano (NYSE:FMX). That’s a mouthful, which is why it is commonly known as Femsa.
I like a steady company like this because I suspect that 2013 could be a bit rocky for the United States as we start to get the hang of the whole “austerity” thing — higher taxes, less government spending and all of that.
In this kind of environment, you need something special to grow, and I think Mexico has one of the greatest potential growth profiles in the world. It has a very solid government, a well-managed budget, a fantastic skilled work force, and lots of natural resources. Narco-terrorism is a big problem, for sure, but the loosening restrictions on marijuana sales in some U.S. states could drain the Mexican cartels of some their funds.
In the middle of all this growing wealth and stability is Femsa — a global beverage conglomerate, based in Monterrey, Mexico. And if you happen to have $170 billion in your pocket, you could probably drive down there and buy the whole shebang. It owns a 54% stake in Coca-Cola Femsa (NYSE:KOF), the largest Coke bottler in Latin America, as well as a 20% ownership stake in Dutch brewer Heineken (AMS:HEIA).
But that’s not all. It’s not just Coke South or Heineken West. It also owns the Oxxo chain of convenience stores, which consists of more than 9,500 units across Mexico and Colombia. The stores are Mexico’s largest convenience store chain, and analysts expect another 3,000 stores over the next couple of years.
Femsa’s reach is impressive to say the least, with over 177,000 employees, more than 160 beverage brands, 9,300 distribution routes, and a couple hundred soft drink and store distribution facilities. All this equates to nearly $16 billion in annual revenues across nine Latin American nations.
At the height of its beer operations, Femsa was the second largest brewer in Mexico, producing brands known around the world such as Tecate, Sol, Dos Equis, and Indio. However, in a bold and aggressive move in 2010, Femsa put its entire beer business up for auction in an attempt to focus on its faster growing soft drink and convenience businesses. The auction drew a lot of attention, but Heineken had the top bid, pledging an equivalent of $7.6 billion in an all-share deal.
Heineken was keen on expanding its emerging market exposure, and the deal now placed it as the #2 firm in the fourth-largest beer market in the world. Meanwhile, Femsa could focus on its other core businesses, while still profiting from the growth of beer as the deal gave them a 20% share of Heineken.
The firm has continued to expand its brand and business reach, as subsidiary Coca-Cola Femsa two years ago acquired all the shares of Grupo Industrias Lacteas in Panama. This deal allows the company to enter the milk and dairy products category and further expand its non-alcoholic beverage business.
Currently, Femsa caters to over 1.7 million retailers and 215 million consumers, and is the #1 beverage provider in every region that it operates in. The firm has grown revenues by 16% annually for the last ten years.
If I see confirmation of FMX growth in 2013, I’ll be recommending a trade in this stock for my Trader’s Advantage subscribers. For now, it’s trading very close to its 52-week highs, but I’m keeping my eye on it for a pullback.
InvestorPlace advisor Jon Markman operates the investment firm Markman Capital Insight. He also writes a daily swing trading newsletter, Trader’s Advantage which aims to capture profits of 15% to 40% and often as much at 100% to 200% in less than 90 days.
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