Trump, Reagan, and the Secret Silver Mine in Mexico

Ronald Reagan won the White House largely thanks to his famous Rust Belt strategy.

President Trump’s decision to borrow Reagan’s Rust Belt strategy proved genius, pushing him straight into the Oval Office.

As Trump begins his presidency, he’ll do it with the lowest approval rating ever (45%), replacing… guess who?

Ronald Reagan, of course.

Prior to Trump, Ronald Reagan and George H.W. Bush owned the lowest approval ratings for modern presidents taking office (51%).

Job approval rating per president

But I believe the similarities between Reagan and Trump begin and end there.

Trump will face radically different challenges, and he’ll face those challenges alongside an electorate far more racially and culturally diverse than when Reagan was president.

Many Americans are questioning Mr. Trump’s ability to unite the country.

Among Trump’s biggest challenges is Mexico.

The two countries are at odds over a wall and questionable trade agreements.

“Massive trade deficits & little help on the very weak border must change NOW!” Trump asserted on Twitter.

With the Mexican peso down 17% versus the dollar and Trump’s next move virtually assured, there could be an enormous investment opportunity developing south of the border.

I asked my senior analyst Martin Hutchinson to get the scoop, and it led him to a silver mine in Mexico.

The mine has a few unusually powerful forces working in its favor, says Hutchinson.

Boy, this one is a true moneymaking gem.

Smart investing,

Louis Basenese
Chief Investment Strategist, Wall Street Daily

http://wallstreetdaily-1.wistia.com/medias/fzhm2qvaqv?embedType=async&videoFoam=true&videoWidth=530

Question: Martin, tell us what’s at the top of your list today. What do our readers need to know?

Martin Hutchinson: There’s a great deal, of course, that’s been happening in the world this month. Perhaps from the international point of view, the most interesting thing is President Trump stopping the Trans-Pacific Partnership with a single executive action.

Question: We covered that yesterday, Martin. I urge any of our readers to go back into our archive from yesterday and listen to Martin’s full report on that. Really, really insightful. But what’s going on today, Martin?

Martin Hutchinson: Today, I want to look at Mexico, which, of course, was a member of the Trans-Pacific Partnership. But more importantly, it’s also a member of NAFTA (the North American Free Trade Agreement), which President Trump has said is going to be reviewed.

At first sight, you’d think that this is bad news for Mexico because, obviously, a lot of its exports are to the United States. But I’ve seen a way in which you can profit — from the fact that the Mexican peso is fairly weak.

Question: All right, let’s back up just for a second. Are you projecting that the NAFTA trade agreement will be pulled off the table?

Martin Hutchinson: I don’t think it will be pulled off the table. I think it will be tweaked.

Question: OK, and why is the Mexican economy so important to investors here in America?

Martin Hutchinson: It’s a pretty big economy — about a trillion dollars. There are a lot of exports from Mexico into the United States — but also some pretty attractive companies there. One advantage that Mexico has is that apart from NAFTA, it has a very good set of trade agreements.

It has trade agreements with the EU, Japan, most of Latin America — a total of 44 countries. In general, Mexico’s trade position is very good. Its growth’s running about 2%, and it doesn’t have much inflation. It’s had some macroeconomic benefits recently from freeing up the telecom sector and the oil sector. They’ve allowed foreign investment in some of Pemex. Overall economic policy’s been improving, and that’s having an effect.

Question: What do you see happening?

Martin Hutchinson: The main thing of interest is that the Mexican peso is down 17% against the dollar in the past 12 months. That’s made it much more attractive for companies to produce in Mexico and sell in dollars, because their production costs — denominated in pesos, local laborers and so on — have all declined by 17%.

That’s not a huge amount of use for the companies selling into the United States — or at least it is in the short term — because they’ve got the threat of NAFTA renegotiation. You obviously worry a bit about that. There are another set of companies that are particularly attractive given this, and those are mining companies. Because if you’re producing, say, iron ore in Mexico and your local costs have gone down by 17%, you can sell the iron ore anywhere in the world.

With Mexico’s excellent set of trade agreements, they’ve got many, many alternative places to sell the iron ore. And it’s priced on the international markets. It’s not dependent on a particular market for its pricing. Therefore, Mexican mining companies have all improved their margins.

Question: Excellent. Are you looking at any individual stocks to own that you’re bullish on right now, Martin?

Martin Hutchinson: Yes, there’s one particular company that isn’t well-known here in the United States, but it’s very large. In fact, it’s the world’s largest silver producer and one of Mexico’s largest gold producers. It’s majority Mexican owned and listed on the London Stock Exchange — but with some shares trading here.

It’s called Fresnillo Plc (FNLPF). That’s a $14 billion-market cap company. It’s something you can buy pretty easily here because there’s a lot of stock around. It has the advantage of being a Mexican-owned mining company. It doesn’t have any nonsense from the Mexican authorities. Because one of the problems that Canadian-American mining companies operating in Mexico have is that the local governments are a bit iffy.

For example, there’s one company that’s had a big tax problem in Mexico. There’s another one that’s got a super new project, but it can’t get all the permits in line. Whereas Fresnillo, being a Mexico-owned company, doesn’t have those problems, because it just sorts out the local governments.

Fresnillo’s costs are down 9% in the first half of 2016, so it’s already benefiting from the decline in the peso. Its sale prices in silver and in gold have gone up in 2016, so its margin is expanding pretty rapidly. It made $167 million net income in the first half of 2016. And its production report, which came out this week, says that for the whole year, silver production was up 7% and gold production was up 23% on the previous year. Its profitability should be going up very rapidly, and it’s already pretty highly profitable. It has a 1% dividend yield, but that’s likely to increase, because the company has a policy of paying out 50% of its profits in dividends. There’s really a lot to go for there.

Question: Martin, if I’m correct, this company benefits from almost a double pop. You’ve got the upside of the silver market and then also that 17% differential in the Mexican peso, the currency pop. Is that correct?

Martin Hutchinson: That’s right. You’ve got the production costs going down because of the peso —and the sales prices going up because of the silver market. Obviously, anytime that happens, profits explode upward.

Question: Fantastic. Well, again, I thank you for your insights, and we’ll have at it again next week, Martin.

Martin Hutchinson: Great, thank you very much.

Good investing,

Martin Hutchinson
Senior Analyst, Wall Street Daily

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