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I’m still on my trip to South America. This time, it’s onward to Argentina, a country blessed with rich natural resources, a well-educated population and an economy focused on exports — agricultural goods, as well as lead, zinc, tin, copper, iron ore, manganese, petroleum, uranium. It also has gold and silver, and I’m checking out some of those resources right now.
I’ll give you the details on my trip in another issue. For now, I’m just going to show you why Argentina is one of the best places in South America you can invest.
From Doom …
Argentina achieved notoriety with its economic crisis that upended the country economically, socially and politically from 1999 to 2002. Significant economic problems, compounded by huge debts, led to a currency and debt crisis that toppled the government.
If you think that sounds familiar, you’re not alone; plenty of people draw comparisons between Argentina’s financial crisis and the troubles that America finds itself pickled in today.
Now for the bad news: By 2002, Argentina had defaulted on its debt, its GDP swooned, unemployment reached 25% and the peso had depreciated 70%.
To Boom …
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| Steel-pipe manufacturer Tenaris (TS) is an Argentinian stock that trades here in the United States. |
But there is good news — if the United States goes down the path of Argentina, then there could be a happy ending. In the most recent (third) quarter, Argentina’s economy grew 8.7% compared with a year earlier. In fact, Argentina’s $328 billion economy is on track to record its fifth-straight year of annual growth above 8%, thanks largely to strong private spending, agricultural exports and industrial production. Also, mining exports have increased 500% in the last decade.
Even better for investors and travelers, Argentina has always been a country open to immigration, and the Argentineans have a well-deserved reputation for hospitality. It welcomes foreigners, and investment of foreign money. It’s not perfect — violent crime makes plenty of headlines, and the middle and lower classes are still suffering the effects of the financial crisis.
How You Can Invest in Argentina
But you don’t have to go to Argentina to invest there. There are Argentine stocks that also trade in U.S. markets. Some examples …
Cresud (CRESY) is an agricultural company with interests in crop production, beef cattle raising and milk production. Cresud owns 19 farms. The 5-year average annual earnings growth is 57%, the P/E ratio is 22.5 and the price-to-earnings growth ratio is just 0.59 — anything less than 1 is attractive. Since agricultural products are some of Argentina’s top exports, Cresud looks like a “buy” on pullbacks.
Tenaris (TS) is a steel pipe product manufacturer based in Argentina with global reach. Tenaris’ customers include oil and gas companies. Its products include casing, tubing, line pipe, and mechanical and structural pipes. The company’s earnings plunged in the most recent quarter, but steel pipes for global energy exploration is a cyclical business, and a cycle that appears to be on the upswing. The stock trades at 22 times earnings.
Grupo Financiero Galicia (GGAL) is one of Argentina’s biggest private banks. It provides credit cards, insurance, and consumer finance services throughout Argentina. That’s not a bad business to be in when an economy is growing at over 8%. The stock trades at 12.25 times earnings.
There is no exchange-traded fund (ETF) to track Argentina’s benchmark Merval Index (yet), but iShares is considering one. The Merval has NEARLY DOUBLED in value since the start of the year, so you might want to wait for a pullback before diving in.
Then again, if the central banks of the world keep throwing piles of money at problems, resource-rich Argentina, with its commodity-export focused economy, should continue to reap a whirlwind of gains.
Yours for trading profits,
Sean
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