Argentina's stock market has roared back to life after
spiraling into a bear market last year.
Global X FTSE Argentina 20 (
) vaulted to a fresh 52-week high this week. It finally broke out
of a three-point, sideways trading range that persisted the past
So far this month, it has surged 10%. That's well above
theiShares MSCI Emerging Market (
) and iSharesMSCI EAFE (
). Tracking foreign developed markets, those picked up nearly 3%
ARGT has rallied 12.51% year to date vs. -9.58% for EEM and
9.22% for EFA.
ARGT has plenty of upside as a reversion-to-the-mean or
catch-up play. It severely lagged global markets last year. It
sank 18% while EEM climbed 19% and EFA returned 17%.
ARGT trades 40% below its 2011 high. EEM hangs 21% below its
2011 peak and EFA has nearly regained it.
The 20-stock ETF's performance has been mainly driven by two
of its five largest holdings --Telecom Argentina (
) andBanco Macro (
) -- which popped 15% and 16% this week. The fund weights each at
5% of assets. The three largest holdings -- Tenaris (TS), a steel
producer;MercadoLibre (MELI), a Latin-AmericaneBay (EBAY); and
Arcos Dorados (ARCO), aMcDonald's (MCD) franchisee -- are
weighted 21%, 20% and 7%, respectively.
The portfolio trades at a price-to-earnings ratio of 12.3,
price-to-book of 1.5 and price-to-sales value of 1, according to
Morningstar. That's cheap compared to EFA's P/E of 14.1, P/B of
1.5 and P/S of 0.9. It's more expensive than EEM with a P/E of
10.5, P/B of 1.4 and P/S of 0.9.
Companies in ARGT are projected to grow earnings per share
33.5% this year after shrinking 25% in 2012, according to Alta
Vista Research, which rates the ETF neutral.
ARGT's earnings are estimated to expand 20% in 2014. Sales are
expected to contract 8% this year after expanding 20% last year.
Sales are seen growing nearly 9% next year.
Telecom Argentina grew second-quarter earnings a whopping 111%
year over year to $1.37 a share, more than double analysts'
estimates. Sales rocketed 103% year over year to $2.36 billion.
The cellphone and Internet service provider in May announced a
share buyback program of 1.2 billion pesos, worth $215.8
Banco Macro reported Q2 earnings jumped 16% year over year to
$1.46 a share, just slightly above forecasts. Sales grew 9% year
over to $553.1 million.
MercadoLibre eclipsed Q2 forecasts when it reported 18%
earnings growth and a 26% sales increase year over year. It moved
20.1 million items off its virtual shelves, 27% more than the
year-ago period, exceeding Credit Suisse's expectations of 19.6
Running at 10.5%, the South American country's official
inflation rate boggles the mind when compared with developed
markets. But it's a far cry from the historic average of 207%,
. Private economists, on the other hand, put
Argentina's inflation rate
at a breakneck 25%.
"Inflation destroys P/E ratios, because the present value of
future earnings is less, and the earnings are of poor quality,"
Michael Krause, president of AltaVista, said in an email.