A Review of the Economy of Mexico

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The economy of Mexico is the 11the largest in the world at about $2.4 Trillion. The Mexican economy is closely integrated with the economies of the US and Canada due to USMCA (previously NAFTA). According to the CIA’s World Factbook, Mexico has free trade agreements with 46 countries. The country is the second largest export market for the US and is also the third largest source of imports. The major sectors of the economy are services, industry and agriculture. Agriculture accounts for just under 3.5% of GDP.

Select Indicators for Mexico:

Source: OECD

Unlike in the past, the manufacturing sector has experience tremendous growth in the past few decades. Automobile and other manufactured goods export account for over 50% of Mexican exports as shown in the graphic below:

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Source: Is Mexico’s President a Threat to Its Democracy?, WSJ

Mexico continues to attract foreign capital especially in the automotive and tech sector due to its close proximity to the US and growth of near-shoring by American and foreign manufacturers. Despite all the positive factors,  the country is plagued by corruption, high inequality and violence unleashed by the powerful drug cartels. So the flow of migrants into the US is unlikely to stop for the foreseeable future.

U.S. Banks vs. European Banks – Equity Performance Gap Since 2007

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European bank stocks are recovering after a decade of disastrous performance. While US banks have recovered from the Global Financial Crisis(GFC) and also the Covid pandemic, banks from Europe barely survived. In addition to these, some of the other factors that crushed European lenders include the many years and iterations of sovereign debt crisis, money laundering scandals, the Great British Brexit saga, uncovering of outright frauds, lack of profitability, inefficient operations, etc. Even pretty basic things like maintaining 24×7 services seem to be a herculean challenge for British banks. It is not uncommon for British lenders to have technical outages for all kinds of silly reasons. Across the continent, many of the lenders maintain thousands of loss-making retail branches as if most customers do not have a computer, internet or a cell phone. Countries like France and Spain are dotted with thousands of such branches.

The following chart from a recent Bloomberg article shows the Atlantic size gap between American and European banks in terms of performance since 2007:

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Source: European Bank Stocks Lead Rally After a Decade of Disappointment, Bloomberg

The full article is worth a read.

 

The Top 30 Stocks in the S&P 500 over the Past 30 Years

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I came across the below list showing the top 30 stocks in the S&P 500 index in terms of annual returns over the past 30 years from May 1991 thru May 2021. The best stock during this time period was Netflix(NFLX) with an annualized return of over 38%. Though it is interesting to review this list and marvel at the astonishing wealth that could have been built, it is not that easy to say the least. For one thing, this chart does not show all the trials and tribulations and investors have had to go thru during these years where some of these stocks plunged dramatically. From Netflix to Amazon(AMZN) to Apple(AAPL) and a few other tech stocks in this list fell 50% or more during the period and then recovered. Not many investors may have had the courage and patience to wait out such losses.

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Source: The Ultimate Superpower in Investing by Charlie Bilello, Compound Advisors

It should noted that all the tech stocks listed above benefitted from the dot com boom and the semiconductor stocks got a boost in recent years due to the pandemic, chip shortage, crypto craze, etc. It is unlikely these combination of events would emerge again in the future.

Similarly one-hit wonders such as Monster Beverage(MNST) are an anomaly. A few years ago when energy drinks turned into a fad the company’s stock skyrocketed.

Disclosure: No positions

Time to Recover to Pre-Pandemic GDP Per Capita For Select Countries: Chart

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Economic recovery is underway in most countries of the world. China’s economy was the least adversely impacted last year due to the swift control of the pandemic. However most the developed countries are now in a better position to grow their economies with the invention of the vaccine last year. After initial dithering and chaos in the vaccine deployment, developed Europe is now catching up with the UK and US in terms of vaccination rates.

The economies of emerging and frontier countries may struggle for a while since they haven’t procured enough vaccines for all their citizens. So with the exception of a few, recovery is going to be slow and take many months if not years to recover to pre-pandemic levels.

The following chart from OECD shows how long it will take to recover to pre-pandemic GDP per capita for select countries. Argentina’s economy is projected to recover to pre-pandemic levels beyond 2025. This is not surprising since the country is the basket case of how to mismanage an economy and had structural problems long before the pandemic. The pandemic only prolongs the misery for the country.

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Source: OECD Economic Outlook May 2021

10 US Food Stocks To Consider

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Inflation is making a comeback in the US economy. The latest figures showed prices grew 5% in May according to a journal article yesterday. It is not just used cars, fuel, services and other items that are increasing in prices basic necessities such as food is also going up in prices. Unlike other products, people will have to eat and its unlikely food can be avoided despite higher prices. Consumers may switch to cheaper food products but still people that value quality and lack of changes in purchase behavior is likely to benefit food producers. Though higher costs are passed on to customers in higher prices, it is possible for some firms to earn higher profits. From the journal article:

More companies also have started passing on to consumers the higher costs they are facing for raw materials and wages.

Food makers said their costs are climbing at an alarming rate, prompting them to raise some prices.

“The inflation pressure we’re seeing is significant,” General Mills Inc. Chief Executive Jeff Harmening said at a recent investor conference. “It’s probably higher than we’ve seen in the last decade.”

He and his peers point to transportation, commodity and labor costs all increasing at the same time. They expect the trend to continue for at least the rest of this year. As a result, General Mills, Campbell Soup Co. , Unilever PLC, J.M. Smucker Co. and other big food companies are raising prices. Some increases are already visible on supermarket shelves, and more are coming this summer.

Source: U.S. Inflation Is Highest in 13 Years as Prices Surge 5%, WSJ

So what are some of the public food companies in the US?

Some of the 10 large food companies that investors can consider for further research are listed below:

1.Company: Kellogg Co (K)
Current Dividend Yield:

2.Company: General Mills Inc (GIS)
Current Dividend Yield: 3.28%

3.Company: Mondelez International Inc (MDLZ)
Current Dividend Yield: 1.99%

4.Company: Campbell Soup Co (CPB)
Current Dividend Yield: 3.22%

5.Company: ConAgra Foods Inc (CAG)
Current Dividend Yield: 2.95%

6.Company: Kraft Heinz Co (KHC)
Current Dividend Yield: 3.72%

7.Company: The Hershey Company (HSY)
Current Dividend Yield: 1,86%

8.Company: J M Smucker Co (SJM)

Current Dividend Yield: 2.65%

9.Company: Post Holdings  (POST)
Current Dividend Yield: N/A

10.Company: Hormel Foods Corp (HRL)
Current Dividend Yield: 2.03%

Disclosure: Long GIS