This is the fifth installment of the “invest in blank” series. Today’s topic is how to invest in Mexico. I’ve previously looked at how to invest in Poland, Russia, Turkey, and Pakistan. I’ll probably look at a couple more countries before the series is over. Or not. I like to keep you guys on your toes. 

Ah, Mexico. Your beaches are fine, your ladies lovely, and your streets are filled with millions upon millions of drug dealers. Or so the internet has told me. What do y’all expect, research?

Also, this picture:

Don't run into this guy. Sean Penn I mean. His friend seems nice.

The guy on the right is El Chapo. Remember him? He’s much less dangerous than Sean Penn.

Mexico has been in the news lately for being Donald Trump’s bitch. The new President campaigned on the promise of building a wall to keep Mexican workers fleeing the country out of America, a project that looks like it’ll be paid for by a tariff on Mexican goods coming back to the United States. The country exported a little less than $250 billion worth of stuff to the United States (or about 80% of total exports), so a 20% tariff would be a big deal.

Mexico’s economy has slowly grown into one of the world’s largest, with a GDP of $1.1 trillion. Canada’s GDP is $1.6 trillion, but we manage to produce that much with about half the population. GDP per capita is a little less than $9,000. Economic growth has averaged between 1-2% for the last decade. Nothing exciting.

Oil’s decline has hurt Mexico, and so will anything that impacts the industrial sector. If the 20% tariff on Mexican goods comes into force, it could impact everything from making cars to growing tomatoes.

Mexico isn’t a particularly cheap country, either. Its main stock market index has a CAPE ratio of 21.5 and a trailing price-to-earnings ratio of 21.1. It trades at 2.4 times book value and 1.4 times sales. It is one of the most expensive stock markets in the world, and pretty much twice as expensive as Turkey, Russia or Poland.

If you’re going to invest in Mexico, I’d suggest picking individual stocks. The good news is this is far easier to do with Mexico versus almost every other country. Dozens of Mexican stocks trade on U.S. exchanges.

How to invest in Mexico — individual stocks

I’m going to borrow the first individual stock idea from Ian Bezek, the guy who’s probably responsible for 100% of Financial Uproar’s Mexico-based visitors. He’s a former hedge fund guy who lives there.

He likes Gruop Aeroportuario del Pacifico (NYSE:PAC), four words my spell check does not. It’s a holding company that owns a bunch of Mexican airports, including Guadalajara, Tijuana, Cabos, and Puerto Vallarta. Despite its largest airports posting fantastic growth, it trades at a little over nine times enterprise value-to-EBITDA. That compares to valuations of between 15 and 20 times EBITDA for comparable European airports. It’s cheap and pays a 5% dividend.

About a year ago I took a closer look at Grupo Mexico (OTC:GMBXF), which owns a big chunk of Southern Copper Corp (NYSE:SCCO), along with owning FM Rail Holding, which is Mexico’s largest railway. It has more than 10,000 km of track.

There were rumblings the company was going to spin out the rail division into its own company. Based on the valuation of other North American rails, there was some value there. But that plan looks to be shelved, so don’t expect any near-term pops from that. Could be a decent long-term play though.

The ETF route

As always, it’s much easier to use ETFs to invest in Mexico. But like I mentioned, it’s hardly a cheap country. I’d be more inclined to avoid it if I was a guy who only invested with ETFs. It’s a stock pickers market, in other words.

The big Mexico ETF is the iShares MSCI Mexico ETF (NYSE:EWW), which has a market cap of just under $2 billion. It trades about a million shares per day on average and is flirting with a 52-week low because of the whole Trump dealie. It has a yield of about 2.5%, which isn’t bad, and an expense ratio of 0.48%.

The largest holding is America Movil L, which provides wireless service to customers in about 20 countries. About 12% of the portfolio is invested in that one stock. Other large holdings include Fomento Economico Mexicano (FEMSA), which is a conglomerate that owns a bunch of different holdings including a Coca-Cola bottler, a chain of convenience stores, and a soccer team. It’s 8.3% of assets.

Other top holdings include Cemex (7.5%) of assets), GPO Finance Banorte (7.1% of assets), and Grupo Mexico (6.5%). I just cannot get enough of these goofy Mexican names. My favorite is definitely Grupo Bimbo, a company I surprisingly did not name in a drunken stupor.

Let’s end this

Personally, I wouldn’t invest in Mexico. Not right now, anyway. Their market is every bit as expensive as Canada or the United States. The country has a bunch of conglomerates that would probably create some value if they broke themselves into pieces, but I doubt that’s going to happen. You’ll do better putting your money somewhere else.

Tell everyone, yo!