The Angel of Independence monument in Mexico City © Peter Adams, Getty Images

Mexico isn't on the radar screens of most investors at the moment. It should be on yours. Over the next year or so, I think Mexico will be one of the world's better-performing stock markets.

That could even be an understatement if Mexico succeeds -- and it now as if it will -- in reforming the national petroleum law that has left the country's state-owned oil company, Petroleos Mexicanos, or Pemex, starved for capital and technology. Mexico's oil production peaked at 3.2 million barrels a day in 2008. Production was down to 2.96 million barrels a day in 2011.

I'm going to lay out the reasons I think the Mexican economy is going to be one of the fastest-growing economies in a world where economic growth is hard to come by. And I'm going to give you the names of five Mexican stocks that will profit from that economic boom and deserve your consideration.

The Mexico you don't know

Why shouldn't you overlook Mexico?

If investors think about owning any stock market in Latin America at all, it's almost certainly Brazil and not Mexico. (It certainly hasn't helped that most of the headlines about Mexico in recent years have been about drug murders and related violence.) But the World Bank forecasts that the two economies will grow at almost the same rate in 2013 at 3.4% and 3.3%, respectively. And over the past 12 months, the iShares MSCI Mexico (EWW) exchange-traded fund has gained 20.8% while the iShares MSCI Brazil (EWZ) ETF has dropped by 17.2%.

Jim Jubak

Jim Jubak

If investors think about owning the stocks of any developing-economy export powerhouse, it's almost certainly China, not Mexico. Yet Mexico's share of imports of manufactured goods into the United States climbed to 14.2% in the first half of 2012 from just 11% in 2005. In the same period, China lost import share. China's share of U.S. manufactured imports peaked at 29.3% in 2009. In the first half of 2012, it had dropped to 26.4%. In the past 12 months, the iShares MSCI China Index (MCHI) ETF has gained just 4.7% to the iShares Mexico ETF's gain of 20.8%.

What's going on in Mexico?

In many ways, it's a simple story of changing competitive advantage.

Mexico is a comparatively open economy, with free-trade agreements with 44 countries, and one in which manufacturers from developed economies face less competition from state champions and less danger from state-sanctioned efforts to copy technologies.

Proximity to the U.S. counts, too, especially for bulky and expensive-to-ship products such as computer displays and TVs. In 2009, Mexico became the world's leading producer of flat-screen TVs, moving ahead of South Korea and China. Mexico is also the leading global producer of two-door refrigerators.

But none of these advantages would matter much if the difference between the cost of labor in Mexico and China hadn't narrowed. Ten years ago, Mexican wages were almost four times those in China, according to HSBC. Today, labor in Mexico is just 29% more expensive. On current trend, Chinese wages will pass Mexican wages sometime in the next five years. Demographic trends almost guarantee that. While China is in the midst of a major decrease in the number of young workers entering the economy, more than half of Mexico's population is younger than 29.

An oil and gas boom

One thing that hasn't yet been figured into the mix is the possibility -- the increasing possibility --that Mexico will revise the 1938 law that prevents Pemex from partnering with foreign oil companies. The ability to exchange drilling and production participation for technology with a Chevron (CVX) or an Apache (APA) could reverse the decline in Mexico's oil production. And bringing in U.S. companies to help Pemex develop Mexico's reserves of natural gas from shale -- Mexico is currently an importer of natural gas -- could double Mexico's natural gas production.

 For example, the Eagle Ford shale formation that produces natural gas and natural-gas liquids in Texas extends into northern Mexico. But while Texas is home to 6,000 wells using fracking to extract natural gas and oil, Mexico has a scant 12. (What's fracking? See this graphic.) The government estimates that producing natural gas from shale could turn the country into a net exporter of natural gas over the next 10 years -- if Pemex can find $10 billion a year over that decade to invest in exploration and production.

This past weekend, the Institutional Revolutionary Party of President Enrique Peña Nieto voted to end its opposition to changing Mexico's national oil law. Changing the oil law is still a long way from a done deal -- it requires a two-thirds vote in Mexico's Congress since the law is embedded in the Mexican constitution. But I think the change will happen. Pemex needs the capital and technology too desperately, and the upside for the Mexican economy is too tempting.

The changes proposed would add 2 percentage points to the Mexican economy, the Energy Ministry projects. In fact, the country has already reaped some reward from moving ahead on the idea of reform of the oil law. The yields on peso-denominated 10-year government bonds have fallen 0.34 percentage point in 2013 as bond investors and rating companies gain confidence in oil industry reforms that would add to government tax revenues over the next decade. Taxes and royalties from Pemex fund about 34% of the national budget.

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