If you have been wishing you had gotten into Mexico ahead of the pre-election rally, you may have a second chance now.

Most of the country's benchmark

IPC

index's pre-election gains were wiped out last week on an earnings miss from index heavyweight and telecom giant

Telmex

(TMX)

. But neither Telmex nor the IPC are likely to remain down and out for long.

In mid-June, optimism that cleaner politics and the unprecedented strength of the Mexican economy would allow the country to survive elections this time around sparked a fire under Mexican stocks. Mexico has been plagued by a six-year cycle of economic crises, which have coincided with election years, since 1976, and this new optimism powered a 10% rise of the IPC index between June 29 and election day on July 4. The IPC managed to hold on to most of these gains following the elections.

Then, Telmex hit.

The company's announcement last Wednesday that its net and operating earnings had missed expectations sent its shares into a downward spiral and whacked the rest of the IPC index.

Because Telmex makes up about 27% of the IPC, the index often plays follow the leader with the telecom mammoth, and three feeble attempts to rally back have so far been held down by pressure from Telmex. Last week, Telmex closed down 16.6% and IPC was off 9.6%. An attempt to bounce Monday morning also was quashed early on, with both ending off about 1%.

But, some strategists say, Telmex has gotten more grief than it deserves. On closer inspection, Telmex's earnings may not be as bad as they look.

According to

Salomon Smith Barney's

Latin America strategist Geoffrey Dennis, the miss had nothing to do with the company's fundamental earnings growth. A report issued by the firm late last week indicated that second-quarter results were lower because of nonoperating items such as monetary and currency losses, higher taxes and higher interest costs -- none of which are expected to be permanent. (Salomon Smith Barney has not done any underwriting for Telmex.)

"Currency losses, due to volatility in the peso, are unavoidable but could turn around in the second half of the year as the currency strengthens again. Higher taxes and interest costs are the result of consolidating subsidiaries in Ecuador, Guatemala and the U.S.," wrote Solly telecom analyst Patrick Grenham in the report. Grenham said operating results in Mexico continued to be solid, and maintained his earnings per ADR and price targets on the company.

Meanwhile, Solly's Dennis said Telmex's valuation is currently very low in historical terms.

"Typically, Telmex valuations are between 10 and 20 times earnings. But they were 10 times earnings after the 1994 devaluation of the peso, so today's valuation of about 13 times earnings suggests we are in a recession, which is far from the case," he said.

So, once the market clears up its thinking on Telmex and the selling pressure has petered out, the company should charge its way higher, taking the IPC index with it.

"We think Mexico is a huge short-term buy. It's gotten so very heavily oversold because of the Telmex news," he said.

"The underlying momentum of the economy is strong, and as we go into earnings season, Telmex is not representative of the way earnings are going to perform."

Even if Telmex doesn't come back, it looks like the rest of the market will.

Mexico is looking quite nice when compared with Brazil, its Latin rival on the foreign-investor popularity scale. Brazil's

Bovespa

rose 4.6% last week after the Brazilian Central Bank cut interest rates by 50 basis points. Salomon made a trading call for Mexico over Brazil in a report released this morning, saying, "On a short-term basis, we expect Mexico to outperform Brazil."

Felix Boni, director of Mexico research for

Credit Lyonnais

, believes that valuations are basically very high in Mexico. Despite this, he still thinks Mexican stocks should begin to turn things around in coming days because the bulk of what is seen as a strong earnings season has begun. (Credit Lyonnais does no underwriting for Telmex.)

"Investors should begin to differentiate between Telmex and the rest of

the Mexican stocks in the next couple of weeks. Particularly when earnings start rolling in. Earnings are seen as generally good this quarter, with the bulk coming in

this week," he said.

With Mexico's GDP expected to grow 5% this year, a pickup in domestic demand fueling consumer businesses and loans, and the current tight monetary policy keeping inflation in check, it's unlikely earnings are going to be too shabby this year.