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At an inflation rate of nearly 100%, Argentina has the world’s second-highest inflation rate, only behind its South American counterpart Venezuela. Hyperinflation can lead to several economic challenges, such as reduced purchasing power of the domestic currency, lower consumer spending, and higher interest rates (tighter monetary policy).
However, the Global MSCI Argentina ETF (ARGT - Free Report) shows that a stock market can still move higher, despite the debilitating effects of rampant inflation.
Image Source: Zacks Investment Research
Three main reasons exist for this phenomenon:
1. Companies can benefit from higher prices: Though prices increase, companies can raise profits further, improve earnings, and thus improve stock prices.
2. Equities can be an inflationary hedge: Rather than holding cash and watching inflation eat it away, an investor may use the stock market as a way of hedging.
3. The stock market discounts the future: While government data is often delayed, the stock market is a forward looking, discounting mechanism. Because of this, the worst may already be priced in. Economic conditions may be improving, and inflation may be retreating.
Today we will cover 3 ADRs that look set to continue to take advantage of Argentina’s booming stock market, including:
Sociedad Anonima is a government-owned energy company engaged in the production, refining, and transportation of oil and gas. Last quarter, YPF produced robust top and bottom-line growth. EPS rose 174%, and revenue rose 36%, year-over-year. Consensus estimates are also attractive:
Image Source: Zacks Investment Research
YPF is growing rapidly and benefitting from higher energy prices. Meanwhile, the company remains reasonably valued. YPF’s forward P/E is 2.3x, about a third of the industry average. The rare combination of both growth and value is illustrated in YPF’s style scores:
Image Source: Zacks Investment Research
YPF is expected to report earnings on March 9th. The stock is currently set up in a bullish consolidation above its 50-day moving average.
Mercadolibre is Argentina’s largest company in terms of market cap and arguably the most stable. Since going public, the stock is up by more than 4,000 percent, far outpacing the S&P 500 Index and most international stocks.
Image Source: Zacks Investment Research
On February 23rd, MELI reported robust earnings growth of 457% on top-line growth of 41%. MELI has a history of producing healthy, consistent growth.
Image Source: Zacks Investment Research
Though the stock is off its highs, earnings are at their highs and only expected to grow more over the next few years. Now is a rare opportunity to scoop up shares of this high-performer at a discount.
Banco Macro Bansud is a leading bank in Argentina. The bank boasts the country’s most extensive private-sector branch and provides standard banking products and services to a nationwide customer base.
BMA is attractive for three reasons. First, it has the strong tailwind of the Argentine stock market. Second, the stock is part of the Zacks Banks – Foreign group, which ranks in the top 9% out of all industries tracked by Zacks. Lastly, the stock is pulling into its 50-day moving average for the first time since breaking out – providing an attractive reward to risk zone.
Image Source: Zacks Investment Research
Takeaway
The Argentinian stock market is fast becoming one of the biggest contrarian trades of 2023. While most continue to discuss rampant inflation in the Latin American country, the Argentine stock market is quietly outperforming the S&P 500 Index and the world. Look for the strength to continue.
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Is Argentina Set to be the Biggest Contrarian Trade of 2023? 3 Stocks to Watch
Argentine Stock Market Flourishes Amid Hyperinflation
At an inflation rate of nearly 100%, Argentina has the world’s second-highest inflation rate, only behind its South American counterpart Venezuela. Hyperinflation can lead to several economic challenges, such as reduced purchasing power of the domestic currency, lower consumer spending, and higher interest rates (tighter monetary policy).
However, the Global MSCI Argentina ETF (ARGT - Free Report) shows that a stock market can still move higher, despite the debilitating effects of rampant inflation.
Image Source: Zacks Investment Research
Three main reasons exist for this phenomenon:
1. Companies can benefit from higher prices: Though prices increase, companies can raise profits further, improve earnings, and thus improve stock prices.
2. Equities can be an inflationary hedge: Rather than holding cash and watching inflation eat it away, an investor may use the stock market as a way of hedging.
3. The stock market discounts the future: While government data is often delayed, the stock market is a forward looking, discounting mechanism. Because of this, the worst may already be priced in. Economic conditions may be improving, and inflation may be retreating.
Today we will cover 3 ADRs that look set to continue to take advantage of Argentina’s booming stock market, including:
Zacks Rank #1 (Strong Buy) stock Sociedad Anonima (YPF - Free Report)
Sociedad Anonima is a government-owned energy company engaged in the production, refining, and transportation of oil and gas. Last quarter, YPF produced robust top and bottom-line growth. EPS rose 174%, and revenue rose 36%, year-over-year. Consensus estimates are also attractive:
Image Source: Zacks Investment Research
YPF is growing rapidly and benefitting from higher energy prices. Meanwhile, the company remains reasonably valued. YPF’s forward P/E is 2.3x, about a third of the industry average. The rare combination of both growth and value is illustrated in YPF’s style scores:
Image Source: Zacks Investment Research
YPF is expected to report earnings on March 9th. The stock is currently set up in a bullish consolidation above its 50-day moving average.
Image Source: Zacks Investment Research
Zacks Rank #1 (Strong Buy) stock Mercadolibre (MELI - Free Report)
Mercadolibre is Argentina’s largest company in terms of market cap and arguably the most stable. Since going public, the stock is up by more than 4,000 percent, far outpacing the S&P 500 Index and most international stocks.
Image Source: Zacks Investment Research
On February 23rd, MELI reported robust earnings growth of 457% on top-line growth of 41%. MELI has a history of producing healthy, consistent growth.
Image Source: Zacks Investment Research
Though the stock is off its highs, earnings are at their highs and only expected to grow more over the next few years. Now is a rare opportunity to scoop up shares of this high-performer at a discount.
Image Source: Zacks Investment Research
Zacks Rank #3 (Hold) stock Macro Bank (BMA - Free Report)
Banco Macro Bansud is a leading bank in Argentina. The bank boasts the country’s most extensive private-sector branch and provides standard banking products and services to a nationwide customer base.
BMA is attractive for three reasons. First, it has the strong tailwind of the Argentine stock market. Second, the stock is part of the Zacks Banks – Foreign group, which ranks in the top 9% out of all industries tracked by Zacks. Lastly, the stock is pulling into its 50-day moving average for the first time since breaking out – providing an attractive reward to risk zone.
Image Source: Zacks Investment Research
Takeaway
The Argentinian stock market is fast becoming one of the biggest contrarian trades of 2023. While most continue to discuss rampant inflation in the Latin American country, the Argentine stock market is quietly outperforming the S&P 500 Index and the world. Look for the strength to continue.