Do you want to Play Theme Shooting Again? You May Want to Buy These Stocks South of the Border.
Reshoring is a major part of the United States economy, bringing industrial power from Asia (mainly China) back home to North and South America. Some production will be done in the United States (eg, semiconductors), and some will flow to other nations.
No country is in a better position to benefit from retrogression than Mexico. But how does one invest to take advantage of the potential economic growth south of the border? The answer may be in the aviation sector and publicly traded airport shares in Mexico.
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Unlike in the United States, Mexico’s airport operators are publicly traded companies, of which there are three. They do not own the airport but have a long-term contract (typically 50 years) that allows them to manage these government assets while dividing the profits.
Group Aeroportuario del Pacifico (NYSE: PAC) is one of Mexico’s airport operators, focusing on the Pacific region, with the largest airports in Guadalajara, Los Cabos, Tijuana and Puerto Vallarta. These cities have a mix of international tourism and industrial power, Tijuana benefits from a land bridge connecting San Diego that allows residents easy access to cheap flights when visiting Mexico.
The stock is trading 15% off its high on fears over recent cartel violence in Mexico, which appears to have subsided for now, and global concerns about rising oil prices and their potential impact on demand for air travel.
Airport operators like Grupo Pacifico are making money as more passengers flow through their airports, and government-sanctioned fare increases. Over time, air traffic to Mexico has exploded due to international tourism, general economic growth in Mexico, and industrial expansion in places like Guadalajara, driving business travel.
Currently, the stock is trading at a dividend yield of 3.5% and at 13 times trailing EBITDA (earnings before interest, taxes, depreciation, and amortization). This is for a business that has grown its revenue by 286% over the past 10 years in US dollars, despite the global pandemic. Unless you think Mexico’s tourism is going to collapse overnight, now would be a good time to buy Grupo Pacifico stock.
An airport operator that is particularly focused on the topic of rerouting says Grupo Aeroportuario del Centro Norte (NASDAQ: OMAB)using the Monterrey airport and a number of small regional airports in the northern and western regions of Mexico.
Monterrey is the richest city in Mexico and is close to the United States. It is much richer than the average Mexican city area because of its industrial power, with many companies from around the world setting up shop there to ship goods to the United States. It even offers direct flights to Tokyo and Seoul to supply local electronics companies.
It lacks tourist charm, but Monterrey will benefit if the restoration trend continues throughout this decade. Total passenger traffic has grown by 8.5% year-on-year to 2025, with Monterrey growing by 15% and accounting for almost half of the passenger volume. Currently, the stock is trading at a dividend yield of 4.2% and 11.5 times EBITDA, making it even cheaper than Grupo Pacifico.
If you’ve only invested in your home market, it can feel intimidating to buy stocks in a country like Mexico, where you have little understanding of the local culture and economy. This fear may be justified in consumer goods, but airports are very much the same, no matter what country you go to.
Currency risks are another emerging factor, but they can be mitigated by increasing revenue per passenger and international traffic and trade income from tourism outlets. As a monopoly, the Mexican government controls airports and determines the prices they can charge for incoming flights, giving Grupo Norte the right to raise prices by 38% over the next five years. That sounds like good business to me.
Mexican airport stocks are well positioned to deliver strong returns to shareholders over the next decade.
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Brett Schafer holds positions in Grupo Aeroportuario Del Centro NorteB. De Cv The Motley Fool recommends Grupo Aeroportuario Del PacíficoB. De Cv The Motley Fool has a policy of disclosure.
Do you want to Play Theme Shooting Again? You May Want to Buy These Stocks South of the Border. was first published by The Motley Fool
