A fascinating new chapter in Argentine politics is set to unfold as “far-right libertarian” Javier Milei surprisingly won the presidential election on promises of radical free-market reforms. Milei, an economist, has vowed to implement a number of measures including the dollarization of the Argentine economy, massively downsizing the government, and enacting sweeping capitalist changes. Naturally, these libertarian ideals have Wall Street enthralled about potential opportunities. Since his victory, the Argentina ETF (NYSEARCA:ARGT) has already climbed 25% as investors price in expected benefits. I believe there could be much more upside ahead if Milei manages to deliver on his pledges.
Of course, it is prudent to temper expectations, given the reality that his ambitious agenda would require cooperation from Argentina’s Congress. Therefore, while the direction of change looks positive for Wall Street, the scope and scale of policy shifts remain uncertain. Additionally, from an impartial perspective, I would not directly assume these moves necessarily improve economic outcomes, so risks undoubtedly persist for investors.
However, for speculative traders who agree with Milei’s premise that a shift toward free-market capitalism can unlock Argentina’s potential, the wisest approach is buying beaten-down Argentine stocks ahead of his inauguration. There is still time left to grab shares before the new administration takes power and optimism lifts prices further. Here are three to consider right now.
Pampa Energia (PAM)
Pampa Energia (NYSE:PAM) is closing in on this year’s high once again after its upward momentum waned back in August. In my view, this surge is largely due to renewed investor confidence about the changes in Argentina and the future ahead under the new administration. There are limited companies that operate out of Argentina and trade as ADRs on the NYSE that investors can gain exposure to. However, PAM is one such stock. And in my view, it is arguably the cream of the crop in the energy sector. From my perspective, the oil, gas, and electricity sectors are among the few that are somewhat shielded from massive inflationary pressures. Pampia has been trending positively for the past three years.
However, Wall Street hasn’t necessarily seen its valuation soar. This is a stock that’s continued to trade at a sizable discount due to the risks associated with investing in Argentina. Naturally, with Milei now in power, I believe this valuation discount could be trimmed as the stock is reappraised in a more constructive light.
The energy sector will likely remain crucial for the economy regardless of administration changes. Thus, in my view, investors may reward companies like Pampia, as optimism rises over the potential for sweeping pro-business reforms. If Argentina can rehabilitate global market confidence and stabilize its economy even moderately under libertarian policies, quality names trading at steep discounts like PAM stock could offer substantial upside.
Transportadora de Gas del Sur (TGS)
Transportadora de Gas del Sur (NYSE:TGS) is another Argentine energy stock surging post-election, as positive investor sentiment expands beyond just Pampia. The rationale is straightforward. Argentina’s energy industry is one of the few sectors where investors can gain exposure without taking on extreme inflationary risks. Much like Pampa Energia, this natural gas transport business has been spiking after the election outcome. Personally, I believe TGS stock still has room to run higher, as Milei turbocharges the industry.
TGS is involved in the production and export of natural gas liquids, along with some crude oil operations. With the northern hemisphere entering the peak winter season, we could see a noteworthy boost to these energy companies’ export volumes paired with a spike in natural gas prices. This macroeconomic backdrop could provide a nice catalyst to propel stocks like TGS markedly higher over the coming months. Even if oil and gas prices moderate from here, Argentina’s energy sector stands out to me as a relative bright spot, regardless of political or economic instability. Consequently, quality names in the space merit consideration.
Cresud (CRESY)
While not an energy stock, Cresud (NASDAQ:CRESY) operates as a crucial player in Argentina’s pivotal domestic agricultural industry and export sector. As the country’s largest agricultural company, spanning grain and beef production along with significant land holdings, Cresud covers the gamut from farm to table. Despite the backdrop of extreme currency devaluation and runaway inflation, Cresud has managed to remain profitable and deliver a dividend. From my perspective, companies focused on agricultural exports could be among the biggest beneficiaries if the new administration successfully lifts currency restrictions and moves towards fully floating exchange rates.
Under that scenario, peso devaluation would likely accelerate. Consequently, export-oriented agricultural businesses earning USD revenues while bearing costs in dramatically devalued pesos could see their profitability balloon. Currently, grain exporters face tight capital controls, export taxes, and a yawning gap between official and parallel foreign exchange rates. However, libertarian policies aimed at unilateral free trade could significantly liberate companies like Cresud.
While risks abound, in my opinion, the potential upside with CRESY stock makes this company an intriguing speculative buy ahead of the new government taking power. If export conditions become more favorable, substantial share price appreciation may materialize in 2024.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
