Two Ways to Bank on Argentina

09/08/2016 10:00 am EST


John Reese

Founder and CEO, And Validea Capital Management

John Reese, editor of Validea, maintains a "Hot List" portfolio that pass stocks that are based on the investing criteria of some of the market's most legendary investors. Here, he looks at two Buenos Aires, Argentina-based stocks that earn top rating from his guru screens.

Grupo Financiero Galicia SA (GGAL) is a financial services holding company. The stock gets a 100% score from my Peter Lynch model which consider this stock a "fast-grower".

Under this strategy, the investor should examine the P/E (11.52) relative to the growth rate (35.54%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company.

This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for GGAL (0.32) is very favorable.

This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years.

This methodology also uses the Equity/Assets Ratio as a way to determine a financial intermediary's health. GGAL's Equity/Assets ratio (9.00%) is healthy and above the minimum 5% this methodology looks for, thus passing the criterion.

In addition, this methodology uses Return on Assets as a way to measure a financial intermediary's profitability. GGAL's ROA (3.34%) is above the minimum 1% that this methodology looks for, thus passing the criterion.

Banco Macro SA (BMA), an Argentina-based bank, earns a 100% rating from our Martin Zweig "Growth Investor" model.

Under this strategy, the P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current market P/E.

BMA's P/E is 11.14, based on trailing 12-month earnings, while the current market PE is 15. Therefore, it passes the test.

Revenue growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures.

BMA's revenue growth is 42.07%, while it's earnings growth rate is 43.98%, based on the average of the 3, 4 and 5 year historical EPS growth rates. Therefore, BMA passes this criterion.

The earnings numbers of a company should be examined from various different angles such as stability in the trend of earnings, earnings persistence, and earnings acceleration. BMA passes these tests.

This strategy also looks at the rate which earnings grow; companies must show persistent yearly earnings growth and must also increase each year for a five year period. Again, the stock passes each of these tests.

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