Cheap Thrills in Argentina

06/21/2010 11:56 am EST


Gavin Graham

Chief Strategy Officer, INTEGRIS Pension Management Ltd

Investors who are not scared off by a history of hyperinflation and devaluations can pick up some fertile soil for a song, writes Gavin Graham in the Internet Wealth Builder.

The sharp decline of the Argentinean peso against harder currencies means the 20 or so Argentina-based American

Depositary Receipts (ADRs) listed in New York have not made money for US and Canadian investors over the last decade.

That said, the strong recovery in commodity prices and rebound in the world economy has seen many of these Argentinean companies double in price over the last year although they still remain at cheap valuations compared to similar firms in other countries.

If you want to take a flyer on Argentina, and I only suggest this for aggressive investors, my choice would be Cresud SACIF (Nasdaq: CRESY). This is a holding company that owns agricultural land in Argentina and produces wheat, corn, and soybeans as well as raising beef and dairy cattle and producing milk.

It also owns a controlling 57% stake in real estate and investment company IRSA (NYSE: IRS), which owns Buenos Aires' largest shopping centre, the Galleria Palermo, hotels such as the Sheraton and Intercontinental, and the largest portfolio of apartments in Buenos Aires. Cresud, which also owns Brazilian agricultural land and a minority stake (27%) in Argentinean bank Banco Hipotecario, has only risen 14% in the last year.

The company recently reported results for the first nine months of the 2010 fiscal year (to March 31st). They showed net income of 184.7 million pesos, compared to 4.7 million pesos in the same period of the previous year. Operating income was 416.6 million pesos composed of 384 million pesos from IRSA's segments and 32.6 million pesos from Cresud's agribusiness segments, which had recorded a loss of 28.3 million pesos in the previous fiscal year. The company said higher prices for beef cattle and improved weather conditions for agricultural production underpinned the increase in agribusiness operating income.

Cresud continues to expand in Brazil, as reflected by the agreement to purchase an equity interest in BrasilAgro. 

The stock sells at a discount to the value of its stakes in IRSA and Banco Hipotecario, making its agricultural operations, which have seen a substantial rebound since the drought of last year, available for nothing.

Investors should keep in mind this is a small stock (market capitalization of $580 million) and not very liquid, so be cautious about chasing the shares. Enter a limit order below $12 and wait for the stock to come to you. (Cresud closed at $11.97 Friday—Editor.)

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