Love Thy Neighbor - Cramer’s Mexico Play
"There are still some bright spots out there, and believe it or not, one of the brightest is Mexico," said Cramer.
Industrial production south of the border is on the rise with Mexico growing GDP faster than the United States.
And a particular hot spot has been the auto industry.
"Mexico's auto business is on fire thanks to a phenomenon that's being called Near Sourcing.
Because of rising wages in places like China, and rising transportation costs, it now makes sense for auto companies to build their factories in a place like Mexico, where wages are low and it's easy to ship the cars they build to the U.S. via the rails," Cramer explained.
Read More: Cramer's Plays on Housing Rebound
Near sourcing has evolved into a dominant trend and one that may be a hot theme next year. Ironically, Cramer thinks one of the best ways to bet on the trend is with a good old American stock - Kansas City Southern.
Kansas City Southern expanded into Mexico almost 20 years ago, in 1996, when the company won the concession to privatize and operate the prime trunk line of the Mexican National Railroad. That's the main line linking Mexico City with the U.S. border at Laredo, Texas.
Today, Kansas City Southern has a 6,600 mile network that's pretty much evenly divided between the United States and Mexico, and their network is only one interchange away from every single major market in North America.
Also, Kansas City Southern currently serves nine auto plants in Mexico, and over the next eighteen months, Nissan, Honda, Mazda and Audi will each be opening new plants south of the border.
Over that time frame, Mexican auto production is expected to surge from 2.5 million vehicles a year to 3.5 million, and Kansas City Southern believes they will continue to have about 50% market share when it comes to shipping these cars.
Sound good? There's more.
Kansas City Southern isn't strictly tethered to the fortunes of Mexico.
"Kansas City Southern also has some exposure to the Bakken shale, where they've found so much oil that they need to ship it to market via train in order to get a decent price because there's not enough pipe laid yet to this gigantic oil field," said Cramer.
"And the company owns half of the Panama Canal Railway, which provides ocean-to-ocean service along the canal."
Looking at the financials, the consensus is for Kansas City Southern to earn $5.32 in 2015, up from $3.26 in 2012.
Of course you can argue that at almost 19 times next year's earnings Kansas City Southern is a relatively expensive stock as compared to a rival such as Union Pacific which trades at least than 13.
But Cramer says this is a situation where you get what you pay for.
"With Kansas City Southern you're paying a premium for the terrific Mexico catalyst, the rising margins, and the big auto exposure, and at the current levels, I think the price is right."
What's the bottom line?
Mexico may emerge as an important theme in 2013 and one of the best ways to play it is with Kansas City Southern.
"In fact, KSU is my new favorite rail, and I think you can buy it aggressively into weakness because it's got the tracks where they're needed," said Cramer.
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