Argentina ETF Hits 52-Week High: Is It Time To Buy?

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Argentina's stock market has roared back to life after spiraling into a bear market last year.

Global X FTSE Argentina 20 ( ARGT ) vaulted to a fresh 52-week high this week. It finally broke out of a three-point, sideways trading range that persisted the past 16 months.

So far this month, it has surged 10%. That's well above theiShares MSCI Emerging Market ( EEM ) and iSharesMSCI EAFE ( EFA ). Tracking foreign developed markets, those picked up nearly 3% each.

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 ( TEO ) andBanco Macro ( BMA ) -- 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 million.

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 million.

Investment Risks

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%, according to TradingEconomics.com . 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.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: ARGT , BMA , EEM , EFA , TEO

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