GMK: Value south of the border

Is there a more stable business than having the #1 torilla brand in Mexico?

Has $3B USD in sales and is a market leader in the US, Mexico and a few other countries. They saw a 1% increase in revenue this year (excluding currency issues). Operating margin for the business increased in 2009 to 6.3% from 4.6% last year. Operating profits totaled close to $100m USD for 2009. YAWNN!!!!! Are you bored yet? Let's get to the real questions.

A year ago GMK was caught in a horrible hedging position as corn prices collapsed that caused an $800M+ USD loss for 2008. The GMK was saved by banks (most likely the same banks that sold them the derivatives) and now is liable for a $660m USD note which comes due in 2014. So why invest? Value.

The current market capitalization for GMK is $1B. At the current amortization rate (and assuming they once again refinance to a yet smaller debt position again in 2014) the company should still hold at least a $1.5B market cap. The credit crisis may not be over, but viable businesses like GMK are not likely to remain exposed in the same way as pre-2008. Let's take advantage of this painfully gained wisdom and buy GMK.

The author recommends buying at $8.50.