Four Argentine stocks to buy now

It’s no surprise to see Brazil receiving most of the economic pundits’ accolades these days. Chile isn’t far behind either.

While they’re Latin America’s stars, though, Argentina seems to have been relegated to the gutter. That’s a far cry from a century ago when Argentina was one of the world’s wealthiest countries.

And even after its ‘Greek moment’ – a devastating 2001-2002 collapse that brought a debt default – its economy is still twice as big as Chile’s, rich in natural resources and offers investors considerable upside potential.

Let’s dig deeper.

Food fires up Argentine growth rate

More than most emerging market countries, Argentina is akin to a rollercoaster, throwing investors from growth and optimism to recession and despair.

And right now, the coaster is swinging to the positive side. The country’s upswing is accelerating, thanks in part to rapid increases in agricultural commodities prices. And with the higher income from exports, the food boom has led to higher consumer and business spending.

The Economist notes that Asia’s rising demand for food has pushed up the price of exports of soya beans and other products from the fertile pampas. That’s boosted tax revenues and reserves, which have climbed to $50 billion, thanks to a healthy trade surplus.

End result: Independent Argentinian GDP estimates for 2010 have risen from 3% at the beginning of the year to just under 9% today.

There is a primary concern, however.

Argentina does have downside, but the upside is better

What would some countries give for a bit of inflation? (Stand up Japan!)

Argentina has some to spare. The country’s official consumer price index rose by 11% over the past year, yet the government granted wage increases of around 25% to workers and recently raised tax brackets by 20%. This is probably a policy move with next year’s presidential election in mind. In addition, Argentina has attracted barely half as much foreign investment as Chile since 2007.

On balance, though, Argentina is moving in the right direction:

• Fitch Ratings recently upgraded Argentina’s long-term foreign currency debt.

• The country has successfully managed to swap much of the debt still in default – something that has given the government a new lease of life.

• China recently signed a deal to pump nearly $10 billion into Argentina’s creaking rail network and build a subway in the second city of Cordoba.

• Argentina is one of a few countries whose stocks are trading at a price-to-earnings ratio of just nine times.

So how do you make money from the situation?

Argentina: great wine, skilful soccer players, stellar stocks

Smelling profits in Argentina, I put together a basket of seven equally weighted Argentinean companies, which trade on the US markets. It was essentially like creating my own ETF.

That was on May 28 – and so far, six of the seven are up nicely and the basket is up 16.8%, compared with 0.7% for the MSCI World Index.

Three of the seven stocks are Banco Macro (NYSE: BMA), Telcom Argentina (NYSE: TEO) and YPF Sociedad Anonima (NYSE: YPF).

One other company I’m thinking of adding to the basket is MercadoLibre (Nasdaq: MELI). It’s the eBay of Argentina (in fact, eBay has an 18% stake). While it’s based in Buenos Aires, it has operations throughout Los Angeles and company insiders own a hefty 35% of the shares.

Let me leave you with this question: Do you think it’s true that in order to scoop big profits from international investing, you need to avoid the herd by looking for distressed nations?

Your answer should be a resounding “yes”.

Not just any struggling nations, of course. But as a rule of thumb, take profits when values and expectations are high and keep an eye out for trouble.


This article

was written by Carl Delfeld for the free daily investment email
Investment U


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