Investing Abroad: Argentinian Stocks
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Diversification is the best defense against global uncertainty. Living abroad, that is one truth that I have come to appreciate more and more. With so much uncertainty in Europe and the rest of the world, we sometimes forget that truth. In these times of uncertainty, many investors seek the safety of good US companies, avoiding the rest of the world completely. Diversification means more than just different sectors of the US economy. Diversification also means foreign companies that will protect your portfolio from domestic risk.
The simplest way for individual investors to achieve adequate international diversification is through an ETF. The iShares MSCI World Index Fund will give investors sufficient global diversification, with a decent dividend to boot. For investors looking for a more hands-on approach, below are three Argentinian companies that might be suitable for a more globally diversified portfolio.
Arcos Dorados (NYSE: ARCO), which means ‘Golden Arches’ in Spanish, is a restaurant owner-operator in Latin America. Described as the McDonald’s (NYSE: MCD) of Latin America (very accurate description), Arcos Dorados acquired McDonald’s Latin American operations in 2007. This acquisition gave Arcos Dorados the exclusive rights to franchise McDonald’s restaurants in South America, Central America and the Caribbean. In the 20 countries Arcos Dorados operates in, there are about 580 million people, but only 1,858 McDonald’s restaurants. That equates to one McDonald’s restaurant for every 312,163 people in Latin America. If you contrast that to McDonald’s US-only operations, there about 312 million Americans being served by 14,098 McDonald’s restaurants. That equates to one McDonald’s restaurants for every 22,130 Americans. Quite a large difference between the two regions. There is huge growth potential for Arcos Dorados in Latin America.
McDonald’s and Arcos Dorados are the undisputed leader in Latin America. When it comes to competition from Yum! Brands (NYSE: YUM) and other major global restaurant companies. There are more McDonald’s restaurants than its next five largest competitors combined. Yum! Brands, for example, has little exposure to Latin America as it concentrates its efforts primarily on Chile. While that Chinese growth strategy has been very good for Yum! Brands, it has left McDonald’s and Arcos Dorados with the clear-cut first-mover advantage in Latin America.
MercadoLibre (NASDAQ: MELI), which means ‘free market’ in Spanish, is an ecommerce company Latin America. The company is primarily known for its online auction website. Because of the very similar businesses, MercadoLibre is often referred to as the eBay (NASDAQ: EBAY) of Latin America. This is not only because its businesses are similar, but also because eBay is a global partner and an 18% stakeholder in MercadoLibre.
Like with eBay, the story here is not MercadoLibre’s online auction website. The real story and growth potential is its ecommerce solutions and online payment businesses. MercadoShops (MercadoLibre’s version of eBay’s GSI Commerce) is the company’s ecommerce solutions division. MercadoShops creates online shopping websites for small and medium sized businesses, as well as marketing those websites and integrating those sites into social networks. MercadoPago (MercadoLibre’s version of eBay’s PayPal) is the company’s online payment system, allowing users to safely and securely transact online.
MercadoLibre is the hands-down leader in Latin American online retail. eBay attempted to break into the market years ago, but failed to take significant marketshare away from MercadoLibre. In the end eBay settled for a partnership with and an investment in MercadoLibre's business. Amazon recently announced that it would try its hand at Latin America. While Amazon's entry could put pressure on MercadoLibre, it is not guaranteed that Amazon's luck will be any better than eBay's. Amazon would not be the first American powerhouse to fail to gain traction in Latin America. MercadoLibre has the advantage of age (13 years in business), an understanding of Latin American retail culture and a payment system (MercadoPago) that is trusted by consumers. These are not an easy things to overcome.
Cresud is an agriculture powerhouse in South America. The company manages 34 South American farms comprising about one million total hectares of land. Their land usage production includes crops, beef cattle, milking cows and animal feed. In addition to managing its existing farm land, the company continues to look for attractive acquisitions. Cresud also has many investments in other companies. Cresud is the majority owner of the real estate development company IRSA, which is involved in residential properties, office buildings, luxury hotels, shopping centers and financial services (credit cards). Cresud is also growing in the Brazilian agriculture space though its investment in BrasilAgro.
There is a growing demand from emerging market countries for higher quality foods. As these emerging market countries continue to develop, the burgeoning middle class begin to transition from relatively inexpensive staple foods to higher amounts of more expensive animal proteins, as well as fruits and vegetables. More steak, less rice. More hamburgers, less bread. Cresud, as one of Argentina’s largest agriculture companies and a major player in beef cattle raising and animal feed, is a great way to play this increased demand of higher quality foods from the emerging market countries’ emerging middle class.
Are these three Argentinian companies suitable for your own diversified portfolio? That I cannot say. Use this list as a good stepping-off point for your own research into good companies in Argentina and elsewhere in the world. Please contact a tax professional about the suitability of international companies in your portfolio.
WhichStocksWork owns shares of Arcos Dorados. The Motley Fool owns shares of Arcos Dorados, McDonald's, and MercadoLibre. Motley Fool newsletter services recommend Arcos Dorados, eBay, McDonald's, MercadoLibre, and Yum! Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.