U.S.-listed Argentine company Cresud (CRESY) looks like a bargain if you don't mind a very bumpy ride and some controversy along the way.
Cresud -- whose full name is Cresud Sociedad Anonima Comercial, Inmobiliaria, Financiera y Agropecuaria -- invests in Argentine farmland. It's a stock that I've owned on and off for the past several years, which is contrary to my typical buy-and-hold strategy, but CRESY just doesn't fit into my "normal" mold.
For openers, Argentina isn't the most business-friendly country around, which is part of the reason why CRESY has been so volatile over the years.
The country has suffered its share of inflation through the years, prompting the government to take several steps that would have scared most investors away. That environment appears to be changing, but here's a very brief history of Argentina's recent woes:
- The Argentine government nationalized the country's oil-and-gas industry in 2012, not exactly a business friendly move.
- Officials also enacted price controls in early 2013 in an ill-informed attempt to stem inflation.
- Cresud held back a dividend it was supposed to pay ADR shareholders in November 2012 and didn't actually pony up the money until the following June. Apparently, the company had trouble getting the Central Bank of Argentina to allow it to purchase the U.S. dollars needed to make the payment.
Not surprisingly, all of this means that CRESY often trades at a discount to what its assets are probably worth. Shares have reacted (and sometimes overreacted) to such events, creating opportunities to buy in at a deep discount. But with new Argentine President Mauricio Macri taking over for anti-business former leader Cristina Kirchner, Argentina might be taking steps to right the ship.
Second-world issues aside, it's CRESY's assets that make the company potentially attractive to investors.
As of the latest quarter, the firm owned nearly 2 million acres of farmland -- or about 3,100 square miles. That's an area slightly larger than Delaware and Rhode Island combined.
CRESY also owns 64.3% of IRSA Inversiones y Representaciones (IRS), one of Argentina's leading real-estate companies. That stake alone is currently worth about $450 million. IRSA, in turn, owns about 30% of Banco Hipotecario, one of Argentina's leading financial institutions. Lastly, CRESY also holds an estimated 40% stake in BrasilAgro (LND) that's currently worth about $63 million.
On the downside, CRESY did have more than $900 million in debt on the books as of Sept. 30 despite a $569 million current market cap. IRSA also faces some controversy regarding a debt-consolidation issue with a subsidiary (including potential breach of debt covenants). As a result, IRSA stock has fallen more than 30% over the past couple of months.
Short-seller Spruce Capital Management has been harping on the IRSA issue, making the case that CRESY is tremendously overvalued given its IRSA exposure. Partly as a result, CRESY shares have lost about 15% over the past five weeks.
The damage from this controversy could become worse over time, but I believe that CRESY is benefitting from the belief that Argentina might be on the rebound given President Macri's efforts.
In the meantime, I'd recommended keeping an eye on CRESY. The ride will no doubt be bumpy and the stock might continue to see volatility from the IRSA issue. But CRESY should benefit from a more pro-business Argentina.
