World's Worst Stocks Flashing Buy Signals for Mexico Investors

(Bloomberg) -- Mexican stocks may be too cheap to ignore after posting the world’s biggest losses over the past six months.

The benchmark index’s price-to-earnings ratio has fallen to 15.5, the lowest in eight years, and optimists point out that more than half the companies on the gauge beat sales and profit estimates in the most recent earnings season. Moreover, analysts’ average price targets are calling for gains in all but one of the 35 stocks in the Mexbol index, according to data compiled by Bloomberg.

Investors have seen Mexico’s stocks, currency and bonds suffer since the election of President Andres Manuel Lopez Obrador in July and moves by his administration that critics see as imperiling growth. Traders cite hopeful signs in recent weeks from the government, including a promise not to incur debt to finance the budget and assurances of additional support for the heavily indebted state oil company.

“We’re overweight Mexico,” said Rob Young, a portfolio manager at Icon Advisers in Greenwood Village, Colorado, adding that he particularly favors the financial and materials sectors. “Earnings and credit have been holding up pretty well and we are showing about 10 percent upside to fair value for the country.”

Price targets for the individual members of the Mexbol imply a 23 percent gain for the index. The average analyst call is for 97 percent of the stocks in the index to gain compared with 78 percent for Brazil’s Ibovespa and 84 percent for Colombia’s Colcap index. Mexico’s gauge dropped 16 percent over the past six months, the worst performance among more than 90 countries tracked by Bloomberg.

Mexican stocks have been punished enough and it’s time to jump back in, said James Syme, a senior fund manager at JO Hambro who is overweight on the country.

“The equity market looks incredibly cheap relative to its history,” Syme said.

--With assistance from Ricardo Strulovici Wolfrid.

To contact the reporters on this story: Justin Villamil in Mexico City at jvillamil18@bloomberg.net;Carmen Reinicke in New York at creinicke@bloomberg.net

To contact the editors responsible for this story: Philip Sanders at psanders@bloomberg.net, Brendan Walsh

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