The Zacks Analyst Blog Highlights: Desarrolladora Homex, Grupo Aeroportuario del Pacifico, America Movil, CEMEX and MDC Holdings
CHICAGO, July 5, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Desarrolladora Homex, SAB de CV (NYSE:HXM-Free Report), Grupo Aeroportuario del Pacifico S.A.B. de CV (NYSE:PAC-Free Report), America Movil S.A.B. de C.V. (NYSE:AMX-Free Report), CEMEX, S.A.B. de C.V. (NYSE:CX-Free Report) and MDC Holdings Inc. (NYSE:MDC-Free Report).
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Here are highlights from Wednesday's Analyst Blog:
Fed Taper Mayhem: 2 Mexican Stocks to Buy
They say, "When the U.S. sneezes, the rest of the world catches a cold," and this seems to have proved true for an emerging market like Mexico, the second largest economy in Latin America. As the Fed kept faltering to taper QE, the Mexican peso witnessed a roller-coaster ride in both the bond and stock markets.
As things settled down after a week-long frenzy, it is time now to cherry pick some Mexican stocks. But before we zero-in on which ones to buy, let's have a recap of the vagaries in the Mexican economy.
The Rise of the Mexican Peso
With its close ties to the U.S., Mexican assets – like the relatively stable high-yielding government bonds – have been one of the most lucrative investment propositions for investors to leverage cheap loans in developed countries. Consequently, there was a significant inflow of funds into the economy as foreign holdings of peso debt amplified six-fold since 2009 to $1.75 trillion pesos ($136 billion) in Apr 2013.
Booming investor confidence triggered by a highly liquid market and hands-off attitude by officials steered the peso to a 4.3% return in 2013 till mid-May – the best performance among 16 major currencies tracked by Bloomberg. The economy was further buoyed by a reform push by the newly-formed government and a record-low benchmark interest rate of 4% by the Bank of Mexico (Banco de Mexico). Bonds and stocks kept scaling newer highs as Mexico gradually became the blue-eyed boy among investors.
The Ignominious Fall
On Jun 19, Fed Chairman Ben Bernanke announced his intentions to start tapering and gradually phase out its $85 billion monthly bond-buying program by 2014. Although the announcement indicated an overall improvement in the U.S. financial system and dialed down the need for any additional stimulus, it ruffled the dynamics of several economies, including Mexico.
This led to a near stampede as foreign investors rushed for the exit door and some of the worst sell-offs of Mexican bonds since 2010. With speculations being rife about Fed tapering since early May, the Mexican peso plummeted from below 12 per dollar to over 13, while the benchmark ten-year bonds rose from a historic low of 4.4% to 6.2%. Even Mexican Bolsa IPC Index, the Mexican Stock Exchange, had an uncharacteristically sharp fall to close at a 52-week low.
The Implications
A drastic fall in the currency and heavy outflow of capital have catapulted expectations of a further lowering of interest rates for a second time this year. At the same time, experts believe that in order to prevent further fall, the government can bring in some radical reforms by opening up the energy sector, which is considered to be one of the vital pillars for augmenting the long-term growth potential of the country.
On the other hand, some industry observers opine that subsequent Fed tapering could be a "winner's curse" for Mexico as they largely depend on the U.S. economy, which account for almost 80% of its total exports. So an overall improvement in the underlying growth factors for its northern neighbor would indeed work in favor of long-term gains. Thus, would it be fair to wish to delay the inevitable for short-term profit?
Top Picks
As markets have more or less stabilized, with reports of weaker U.S. GDP growth forcing the Fed to reconsider its decision and continue with the bond-buying program, it is deja vu for investors all over again. In this context, top Mexican stocks with attractive valuation metrics backed by a solid Zacks Rank methodology include home developer Desarrolladora Homex, SAB de CV (NYSE:HXM-Free Report) and airport manager Grupo Aeroportuario del Pacifico S.A.B. de CV (NYSE:PAC-Free Report).
Both of these stocks hold a Zacks Rank #2 (Buy). While Desarrolladora Homex has a forward P/E and long-term earnings expectation of 1.52 and 13.15%, respectively; Grupo Aeroportuario has respective tallies of 19.67 and 9.37%.
We also suggest a couple of Zacks Rank #3 (Hold) stocks – America Movil S.A.B. de C.V. (NYSE:AMX-Free Report) and CEMEX, S.A.B. de C.V. (NYSE:CX-Free Report) – as they are expected to post robust earnings growth of 8.34% and 18.98%, respectively.
Even some hedge funds are bullish on the Mexican peso and anticipate the recently-found optimism to continue through year's end. As fundamentals look strong, the market is getting flocked by a huge pool of investors, creating short-term noises and long-term opportunities. Only time will tell whether such investor confidence is justifiable or not.
MDC Holdings Upped to Strong Buy
On Jul 2, Zacks Investment Research upgraded MDC Holdings Inc. (NYSE:MDC-Free Report) to a Zacks Rank #1 (Strong Buy) on the back of growing momentum in the homebuilding market and a bright industry outlook for the year.
Why the Upgrade?
MDC Holdings is benefiting from the increase in demand for new homes, a fact supported by most of the housing data released recently.
The housing market has seen significant upside in new home construction activity, which is fueled by the increase in demand for new homes. Despite recent increase in mortgage rates, the housing market continues to witness momentum, indicating stable recovery. Increased affordability due to higher rentals is boosting demand. Supply, however, remains limited due to low inventories, both for new and existing homes. Home prices have thus moved up sharply with increased market demand and limited supply.
Most homebuilders like MDC Holdings are thus, witnessing increasing traffic levels due to heightened consumer demand. Majority of the companies are witnessing significant growth in both volumes and average selling prices. MDC Holdings has recorded high double digit earnings surprises for the past seven quarters. Its average surprise for the past four quarters is 74.42%.
The strong housing momentum has also been reflected in MDC Holdings' solid first quarter results (ended Mar 31) reported on May 2, 2013. Its first quarter fiscal 2013 adjusted earnings per share and total revenue beat the Zacks Consensus Estimate and the prior-year quarter levels by a wide margin. The beat was driven by high double digit year-over-year growth in new home orders, backlogs, home closings and margin expansion. The company was also able to increase average selling price of the homes sold by 9%.
MDC Holdings is due to report its fiscal second quarter 2013 results in late Jul/early Aug. The Zacks Consensus Estimate at the moment is pegged at 55 cents per share.
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