I sold all Northlake positions in NII Holdings (NIHD) this morning in response to the threat that swine flu could have on the company’s business and reported financial results. The stock has rebounded about 60% off its low from a month ago as investors were beginning to again appreciate the strong organic growth profile of the business that I have written about extensively and favorably.
Given the strong run in the shares, I fear the stock is in for a bout of profit-taking and swine flu presents the perfect trigger given that Mexico is NIHD’s largest market. Growth in Mexico is already under pressure due to competition and economic pressures. Swine flu could exacerbate the challenges severely if it expands in Mexico as appears may be the case. The Peso has dropped a quick 5%-7% in response to the threat to Mexican tourism. This compounds the impact on NIHD which reports in U.S. dollars.
Swine flu may pass quickly from the headlines with limited economic impact in Mexico. However, NIHD could take a harsh hit, 20% or more if the flu lingers. This created a poor risk-reward tradeoff for the stock in near-term so I decided to sell despite my generally bullish view of the company.
Prudence says to sell. NIHD can always be bought back.