ETF Teardown: Mexico's Best Stocks

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

ETFs hold collections of stocks that share certain elements. Investors captivated by the potential for growth in Mexico, for example, can turn to the iShares MSCI Mexico Index, which includes industrial materials, financial services, and telecommunications stocks among its holdings. But since this ETF invests in a number of companies, 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 locate great stocks quickly, CAPS-rated stocks can be "tagged" with descriptors that group the company with others in the same category -- "pharmaceutical," for example, or "Australia."

Selecting the Mexico label in CAPS gives you a list of 24 companies that trade on American exchanges and carry this tag. This particular collection of investments has outrun the general market in the past year, up 12.9%, while the S&P 500 has remained flat.

To gauge which companies the CAPS community thinks offer the best opportunities in Mexico today, we'll sort these businesses by their CAPS star rank, from one to the maximum five stars. We'll then examine the individual 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've pulled from CAPS today:

What happens in Mexico ...
Many of the best stocks in Mexico are companies that don't necessarily derive all of their revenue or profits from the country. A case in point is Coca-Cola FEMSA, the second largest Coca-Cola (NYSE: KO) products bottler and distributor in the world. While the company is based in Mexico, it distributes over a wide range of territories in Latin America, producing about 40% of the case volumes of Coca-Cola brands sold in the region.

In its most recent quarter, more than 73% of its sales growth came from regions outside of Mexico. Not to be discounted, though, Mexico still makes up a majority of the company's total revenue -- 52.6% in 2006. With the strength of the Coca-Cola brand, the Mexican bottling powerhouse has been able to hold its ground against main competitor PepsiCo (NYSE: PEP) and grow unit case volumes at a 5% clip from 2004 to 2006.

Many investors believe the growth opportunities at Coca-Cola FEMSA are supported by two things: positive macroeconomic trends for Latin America and very favorable demographic trends. There's no secret to this recipe -- more people with more money available to buy Coca-Cola products adds up to great profits. Out of the 133 CAPS investors rating the company, a near-unanimous 131 agree with this line of thinking, and believe the company will outrun the S&P 500 going forward.

Keep on truckin'
And for all the beverages consumed in Mexico, someone has to truck all those cans and bottles around to consumers. One of Mexico's largest logistics companies, Grupo TMM, provides both maritime and trucking transportation services. But with a market cap of little more than $120 million, it is still tiny in comparison to global behemoths like Diana Shipping (NYSE: DSX) or Tidewater (NYSE: TDW).

Grupo TMM has its share of issues, however, first and foremost being a significant debt load of $327 million pro forma. The company continues to rein in spending and reorganize the business to improve operations, though, and many CAPS investors are bullish on the turnaround efforts. More than 95% of investors have taken a liking to the low-priced stock and believe it will beat the broader market in the future.

You can lead a horse to water ...
Plucking individual stocks from an emerging market such as Mexico is, of course, a high-risk endeavor. Investors should always perform their own due diligence on companies rather than take a recommendation. After all, even the best stock pickers can be horribly wrong on a stock.

So, do you agree that consumer goods is still the best place to be in Mexico? Or are beaten-down logistics companies a better play? Give your own opinion in Motley Fool CAPS.