South of the Border
11/25/2005 12:00 am EST
Two leading investment advisors have recently been looking south of the border for investment opportunities. Mexico. Louis Navellier sees potential in cement with Cemex, while Elliott Gue seeks to ring up gains from Telefonos de Mexico.
"Cemex S.A. de C.V. (CX NYSE) is one of the largest cement companies in the world. Approximately 75% of the company's sales come from cement. Cemex has an annual production capacity of over 90 million tons. The company also makes ready-mix concrete, aggregates and clinker (an intermediate product used to make Portland cement). Cemex's operations are concentrated in North America and Europe, but it also operates in the Middle East, South America, and the Pacific rim. North America used to account for the majority of its sales, but after the company's acquisition of British-based RMC Group, Europe is now Cemex's largest market.
"I anticipate Cemex will be a major beneficiary of the reconstruction after Hurricanes Katrina, Rita and Wilma. Recently, the company announced that its latest quarterly earnings rose 87% and sales rose 110%, after the consolidation of its merger with RMC Group. Even with that high rate of growth, its price/earnings ratio remains low at 17, and it fell further in the wake of its latest quarterly earnings results. With strong earnings growth and a low P/E ratio, the outlook for further gains in Cemex should prove to be very attractive to many institutional investors."
"Telefonos de Mexico SA (TMX NYSE) offers fixed-line telecom services in Mexico and several other Latin American markets," notes Elliott Gue in Advantage Bulletin. "In Mexico, fixed-line service isn't a high-growth market like wireless, but it's steady and the company has a dominant market share. While its Latin American operations have a bit more competition, they also offer prospects for higher growth. TelMex has a history of making strategic acquisitions in the region. The company is considered a leading bidder for a stake in Colombia Telecom, which would give the company exposure to a market that is less mature and faster growing.
"Overall, Latin American stocks are some of the strongest in the chart book right now. If there's a rally later this year, the stocks with the strongest relative strength—such as TMX— will be the best plays. Technically, the stock formed a cup-with-handle base between February and September of this year. In late September, TelMex broke higher from a tight handle amid good volume expansion. Since then, the stock followed through and pulled back slightly last week, presenting a good entry point. Buy under 22 for a one-to-three-month holding period."
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