ETF Teardown: Mexico's Top Stocks

Noted for their simplicity and other advantages over mutual funds, exchange-traded funds (ETFs) have become a popular investing tool.

ETFs hold collections of stocks that share certain elements. If investors want to capitalize on opportunities south of the border, for example, they can turn to iShares MSCI Mexico Index, which contains companies such as Telmex (NYSE:TMX) and Cemex (NYSE:CX) as its top holdings.

But because this ETF invests in a number of stocks, its broad diversity also limits your upside.

Fear not, Fool -- in this edition of "ETF Teardown," we'll use some nifty tools to drill into the best of what Mexico has to offer. To help, we'll use Motley Fool CAPS, our tool for screening and ranking stocks and stock pickers.

The power of tags
To help investors quickly locate great stocks, the 5,600 stocks rated in CAPS can be tagged with descriptors that group the company with others sharing certain qualities -- Wind Power, for example, or Health-Care Plans.

Selecting the Mexico tag in CAPS gives you a list of 24 investments that trade on American exchanges. This particular collection of investments has been flat in the past year, returning essentially 0% while the S&P has lost 8% over the same period.

To gauge which companies the CAPS community thinks offer the best opportunities in Mexico today, we'll sort a sampling of these businesses by their CAPS star rank, from one star to the maximum, five. We'll then examine a few comments on the companies to see who -- from Wall Street to Main Street -- is bullish or bearish on the business and why.

Down to the nitty-gritty
Here are some Mexican stocks I found on CAPS today.

There are certain things that Mexico is known for -- prime among them being food and tequila. This time we're talking chicken with Mexico's largest poultry producer, Industrios Bachoco, popping up on our ETF teardown list.

Even with food prices soaring around the globe, Bachoco recently announced building additional chicken farms in the state of Chiapas as part of its ongoing commitment to expansion.

The company has been able to offset the increasing costs of grain and feed that all producers have been seeing with efficiencies in other areas of the business as well as with cost increases passed on to consumers. Overall it has kept the pesos flowing to the bottom line, to the glee of the few investors who follow the company.

Like fellow chicken king even farther south, Brazil's Sadia (NYSE:SDA), Bachoco has shown investors that chicken is great business. One of the rare companies in CAPS that everyone says to buy now, Bachoco has all of its 57 All-Star players giving the company a thumbs-up.

Chickens may not be all that exciting of a business, but a 2.3% dividend yield and a forward P/E of 13.5 has given investors something to crow about. Investors looking for profits in boring places may want to get the scoop on Bachoco from its CAPS page, where 114 out of 115 players rating the company predict it will outperform the S&P in the future. 

Back to basics
It's certainly hard to go against the grain of the top global brands. And when companies like FEMSA dominate a region for the production and sale of staple goods that consumers use daily (think beer and soda), it's hard to find reasons to invest against the trends. Especially trends like first-quarter results for FEMSA that showed operating income increasing by nearly 20% as all of FEMSA’s main operations reported favorably.

Not just a majority of CAPS investors think FEMSA is the real thing, the company has earned a near unanimous thumbs-up from the 457 players rating the company. In addition, 218 out of 221 CAPS All-Stars predict FEMSA to outperform the S&P as well. Combine a little cerveza with Bachoco's chicken, and I think you'll not only have a good meal, you've got winning investment combination as well.

Lead a horse to water ...
Plucking individual stocks from Mexico is, of course, a high-risk endeavor. Investors should always perform their own due diligence on companies rather than take a recommendation. Even the best stock-pickers can be horribly wrong.

Do you agree that chickens are the future in Mexico? Or are staple goods a better play? Give your own opinion at Motley Fool CAPS.