By now the secret is out: Mexico is one of the most attractive emerging markets for U.S. investors. Its close proximity makes it an easier market to understand than emerging nations in the Far East, and it's certainly a safer market than the budding African public markets. While there are many opportunities to invest in Mexican companies, an easier start is to buy U.S. brands growing their presence in the region. Here are a couple of Mexican companies bringing the brands you know into a fresh market.
I've written before about the strong potential in investing in Mexico. The nation's multi-decade economic stability, its booming manufacturing industry, and its low levels of inflation make it a very attractive place for both domestic and international investors. For American investors, though, it can be tough to analyze foreign brands without any real-life experience with them. In that case, it's easier to buy names you know through locally based companies. In a prior article, I gave an example of this with Arca Continental (NASDAQOTH: EMBVF.PK). Arca is the second largest bottler of Coca-Cola (NYSE:KO) products in Latin America. It has ticked up about 28% since August based on strong top-line growth. In the second quarter of this year, revenues were up more than 45% year over year.
Arca is a great way to get in on emerging growth with the safety of a tremendous global brand like Coke.
The Coke bottler isn't the only beverage play in town, though. Recently, Latin American restaurant operator Alsea, which trades on the Mexican stock exchange, announced it would invest $110 million in opening Starbucks (NASDAQ:SBUX) stores across Mexico, as well as Argentina. Similar to Coke, Starbucks is an industry leader and has proven itself time and time again to be an unbelievably successful operation.
Mexico is Starbucks' fastest-growing Latin American market, with 360 cafes currently open and many more on the horizon. Alsea is hoping to open around 170 new stores in the country and 50 in Argentina.
Starbucks CEO Howard Schultz gave a very strong endorsement of the company's operations south of the border. At a conference in Mexico City, Schultz alluded to "how big this market can be" and how this is only the beginning of the company's expansion into the area.
By investing in Alsea, investors get access to the incredible power of the Starbucks name while picking up a faster-growing business than Starbucks itself, which faces a relatively mature market in its 18,000 U.S. stores.
While Mexico has long been a place of coffee-drinking (it is the No. 7 exporter of Arabica beans), most of the coffee drinkers are still on the instant stuff -- leaving big room for fresh coffee to make gains.
To me, Alsea is a no-brainer for a safe emerging-market pick.
Did you say "Starbucks"?
While I favor the growth of a region like Mexico or Argentina, many investors would likely prefer the pure plays -- Starbucks or Coca-Cola. There are some merits and risks in both ideas.
Starbucks just launched the Verismo single-serve coffee machine, or, as analysts will call it, The Green Mountain Coffee Killer. As most know by now, single-serve coffee is the fastest-growing area in the coffee business. It was just a matter of time before the King of Coffee got in on the action. Green Mountain Coffee Roasters has a big head start in the business, but as far as investment goes, you couldn't pay me to take shares of that company.
Coca-Cola is doing well as always, but the company issued a warning about the impending Chinese slowdown. The Far East up until this point has been a big source of growth for the soda behemoth.
For the record
Starbucks and Coca-Cola are safe, low-volatility, very-little-chance-you'll-lose-your-shirt stocks. For me, though, I want to invest in a company that isn't playing in such mature markets. With these emerging plays, you can grab up that growth at cheaper prices than any domestic growth company because of the priced-in risk premium. As always, be sure to do your homework and choose the stocks that best fit your personal financial profile.