Americans consume about 70 percent of Mexican exports, so any US recession brings Mexican growth to a grinding halt. Investors concerned about another major slowdown in the US are usually hesitant to look for opportunities south of the border.

The brutally violent narcotics wars in Mexico also haven’t helped, dominating the headlines and scaring off not just investors but also tourists.

All of these concerns are legitimate, but they’re also overblown. While the US economy struggles with several headwinds, it continues to muddle through with modest growth and positive signs of recovery, reducing the risk of a Mexican contraction.

Moreover, most of Mexico’s gang violence is confined to the country’s northern border states of Baja California, Chihuahua, Nuevo Leon and Tamaulipas, where the cartels are battling for control of lucrative trafficking routes into the US. Further south, the country is generally peaceful, with most Mexicans simply going about their daily lives.

A number of positive factors are at work down south. Mexico has been a major beneficiary of rising global wages. While Chinese labor costs have been rising by between 12 percent and 14 percent a year over the past five years, Mexican wage growth has quietly averaged between 3 percent and 4 percent.

Although wage growth in Mexico is not as impressive as in other parts of the world, it’s maintaining a healthy enough level to create a growing consumer class. Higher fuel prices and unfavorable exchange rates have pushed up shipping costs, prompting many manufacturers to shift production back to the Western hemisphere. As a result, unemployment in Mexico is currently at its lowest point in more than 3 years.

These trends have been driving healthy growth in domestic consumption, helping offset export weakness in the past several quarters. In the third quarter of 2012, Mexican gross domestic product (GDP) grew by 3.3 percent, with the country’s services sector contributing nearly 5 percent, reflecting robust domestic demand.

The fundamentals of the Mexican economy are also extremely attractive. Credit as a percentage of GDP is only about 20 percent compared to about 50 percent in Brazil, Latin America’s largest economy. That makes Mexico less exposed to another global credit crisis that could result from a turn for the worse in Europe, as well as leaving plenty of room for future growth.

And despite a bump up in November to 4.2 percent, inflation in the country has generally been holding steady between 2 percent and 4 percent, well within the Banco de Mexico’s target band, which reduces the near-term risk of an interest rate hike.

Finally, several economic reforms ranging from liberalizing labor markets to incentivizing private investment in energy markets are in the legislative pipeline and expected to become reality in 2013, including a hike in the minimum wage.

Betting on Telenovelas

Grupo Televisa (NYSE: TV) is an excellent play on the virtuous cycle of rising consumer incomes.

A Spanish-language television powerhouse, the company is the largest broadcaster in Mexico and wholly owns or has substantial interests in both cable and satellite television providers. It also owns a vast library of Spanish-language programming content.

To place any television advertisements in Mexico, it’s hard to avoid Grupo Televisa. An estimated 70 percent of television viewers tune in to its networks during primetime hours, allowing the company to command a premium and growing ad rate as more advertisers seek to tap rising Mexican incomes.

The company is doing an excellent job of monetizing its content library, recently inking a deal that provides programming access to Netflix (NSDQ: NFLX), which is pushing its services into Latin America.

Grupo Televisa is garnering growing content revenue, as it exports more programming to Univision, a dominant Spanish-language television station in the US.

The company’s pay-television services are also enjoying substantial growth in Mexico, where cable and satellite television services have only penetrated 45 percent of the market.

Sky, Grupo Televisa’s satellite television service, has seen explosive subscriber growth since it began offering low-priced subscriptions that allow access to a greater depth of content than its competitors. The service is popular with Mexican families with expanding disposable incomes and should prove a major growth driver for the company for years to come.

While Grupo Televisa’s aggressive acquisitions have dampened earnings in recent years, annual revenue growth has averaged more than 10 percent over the past five years and earnings should soon catch up.

A powerhouse poised for growth, Grupo Televisa is a buy up to 30.

Smart Play on Smartphones

The desire to stay in touch is a natural human impulse, helping make the telecommunications industry another major beneficiary of rising Mexican incomes.

A major provider of telecommunication services throughout Latin America, America Movil (NYSE: AMX) operates the largest cellular telephone network in Mexico and controls about 70 percent of the market share. The company’s 2010 takeover of Telemex also made it the country’s leading provider of fixed-line telephone service.

Although cellular phones are already pervasive in Mexico, there’s still plenty of growth potential. Americans have become accustomed to communicating with text messages or browsing the Internet via their smartphones, but these capabilities are still largely unheard of south of the border. In fact, only about 15 percent of Latin Americans have access to data services via their smartphones.

As a result, America Movil is investing heavily in building out its data infrastructure, devoting more than $8 billion to capital expenditures last year and launching 4G LTE service in Mexico this past November. Over the next three years the company plans to sink a further $8 billion into its infrastructure development plan.

Because of its network improvements it has begun aggressively marketing smartphones along with competitively priced data plans to promote data usage. Given the low penetration rate for smartphones that’s a huge growth market and America Movil is in the lead.

This massive infrastructure investment will not only service America Movil’s own customers, but will also allow the company to lease access to other providers, providing a potential revenue boost down the road.

As with most Mexican stocks, America Movil’s shares are currently trading at a discount to their historical valuation, commanding a price-to-earnings (P/E) ratio of 14.2 versus a historical average of 15.2. That’s a bargain, considering revenue growth over the past five years has exceeded 23 percent and earnings growth 8 percent.

America Movil is a buy under 30.

A Proven Business Model

Another solid Mexican consumer play is Wal-Mart de Mexico (OTC: WMMVY).

Shares of Wal-Mart’s (NYSE: WMT) Mexican subsidiary sold off sharply earlier this year in the wake of a bribery scandal, which involved executives paying off government officials to soften the ground for the company’s expansion.

While the scandal has been an obvious headwind for the company, Wal-Mart de Mexico is one the largest retailers in Mexico and the country’s largest private employer. Shares have been picking up momentum toward the end of this year despite reports that both it and its parent company will pay billions in fines in the US and in Mexico.

Last year, Wal-Mart de Mexico grew revenue by 13.4 percent, driving nearly peso-for-peso growth in earnings as a result of its low overhead and impressive margins. This year it’s on track to grow earnings by another 12 percent on robust revenue growth.

The company also has a pristine balance sheet with no debt, paying for more than MXN16 billion in capital expenditures, i.e. new store construction, out of cash flows with MXN17 billion in free cash flow left over.

The legal woes and bad headlines surrounding the company are temporary headwinds. Wal-Mart is a tough competitor to beat, anywhere in the world.

It doesn’t make sense to bet against the company’s proven business model, making the stock’s battered price an opportune entry point for investors.

Buy Wal-Mart de Mexico’s shares under 40.

For those investors interested in a more diversified play on Mexico, iShares MSCI Mexico Investable Market (NYSE: EWW) exchange-traded fund (ETF) is a terrific option.

The fund has a heavy 23.3 percent allocation to telecoms, including names such as America Movil, as well as a sizable 31 percent allocation to consumer staples companies such as Wal-Mart de Mexico and beverage bottler and distributor Fomento Economico Mexicano (NYSE: FMX).

In addition to tapping into the Mexican consumer story, the ETF also offers an 18.7 percent weighting to the country’s energy and materials sector while underweighting financials at 9.7 percent of assets.

The fund is less volatile than most other Latin American ETFs because its portfolio composition isn’t heavily reliant on commodity prices.

The fund also is extremely low cost, with an expense ratio of just 0.52 percent, making it superbly suited for buy-and-hold investors.

Buy iShares MSCI Mexico Investable Market up to 75.