Sizing Up Mexican ADRs After New NAFTA Deal

Mexican stocks responded well to Monday’s news that the U.S. and Mexico had reached a preliminary rewrite of the North American Free Trade Agreement (NAFTA) between those two countries. Though the deal centers mostly on the auto industry, most Mexican stocks got a nice bounce on Monday and Tuesday. The upmove extends a nice rally for Mexican stocks, and got me thinking about Mexican ADRs.

There are 13 Mexican ADRs (Advanced Depositary Receipts) that trade on either the New York Stock Exchange or the Nasdaq (none are in the Dow). Most of them have been on the rebound since June after getting beaten down the first half of the year.

Are any Mexican ADRs currently worth buying? Paul Goodwin, our resident emerging markets expert, doesn’t own any in his Cabot Emerging Markets Investor portfolio at the moment. That’s probably because only two of the 13 are actually up for the year.

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Let’s examine those two Mexican ADRs, and see if either of them are worth keeping an eye on.

Mexican ADR #1: Banco Santander Mexico (BSMX)

The Mexican division of this Spanish bank—the world’s ninth-largest by revenue—has a market cap of $11 billion and is on pace to collect $4.3 billion in sales this year. That would be a 19% top-line improvement from last year, to go along with a 10.6% expected jump in earnings per share.

BSMX shares have reacted well to the growth, up nearly 11% year to date with a big gap up in July after an earnings beat. The stock has been trading above its 50- and 200-day moving averages for more than a month. Not a bad-looking chart.

Mexican ADR #2: Grupo Aeroportuario-OMA (OMAB)

A Mexican airport operator based in San Pedro, shares of OMAB are up more than 26% this year, with virtually all of the gains coming in the last two months.

OMAB is one of two Mexican ADRs that's actually up this year.OMAB, in fact, is one of three public Mexican airport operators that trades on U.S. exchanges (Grupo Aeroportuario del Pacifico and Grupo Aeroportuario del Sureste are the other two), though it’s been by far the best performing this year. That likely has everything to do with the fact that OMAB is the only one of the three that had double-digit sales and earnings growth in its most recent quarter. For the year, OMAB’s sales are expected to be flat, though analysts anticipate 19.6% EPS growth. With a modest price-to-earnings ratio of 20, it’s a stock that checks a lot of boxes.

Bottom Line on Mexican ADRs

Both of these Mexican ADRs have solid business trends and their stock charts look pretty good in the last two months. If you had to choose one to buy, OMAB looks like a better bet, with a longer uptrend and better year-to-date performance.

Granted, an airport operator isn’t likely to benefit from the new NAFTA agreement—or, United States-Mexico Trade Agreement, as President Trump prefers to call it. And that just goes to show you that you shouldn’t invest in Mexican stocks simply because they’ve had a couple of good days.

Chris Preston

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