Telecom Argentina S.A. (ADR) (TEO), Petrobras Argentina SA ADR (PZE): Why I’m Long Argentina Despite Default Fears

As a matter of fact, I expect a deal to be closed sooner than later. Petrobras Argentina SA ADR (NYSE:PZE) is a wonderful asset with an enormous acreage position in the Vaca Muerta formation (the world’s third-largest shale oil and gas reserve), very low debt (0.4 times EBITDA), and ameliorating operational performance. For its first quarter, Pesa reported improved results as revenue and EBITDA increased by 6% and 31% year over year, respectively. This was a result of the solid performance of the exploration and production segment. Indeed, EBITDA margins increased to 27%. If we compare these figures to the ones presented by Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR), the great performance achieved by the Argentinean subsidiary becomes clear: Petrobras Brazil has a net debt of 2.6 times EBITDA, and its EBITDA margins are just below 20%.

Furthermore, the current valuation of Petrobras Argentina SA ADR (NYSE:PZE) is too attractive to ignore: While paying a 2.7% cash dividend yield, Pesa trades at a P/E of 6.6. I’m long Pesa right now. Meanwhile, Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) pays no dividend and trades at 7.5 times earnings.

A government change will bring Latin America’s third-largest economy back into international investors’ consideration. Now is a good time to start positioning yourself into Argentina’s best assets in order to catch a future rally, even as an adverse New York court ruling threatens to bring the country back into default. The risk in Argentina is real, I believe Telecom Argentina S.A. (ADR) (NYSE:TEO) and Petrobras Argentina SA ADR (NYSE:PZE) are great value plays to get into Argentina before everyone else does.

The article Why I’m Long Argentina Despite Default Fears originally appeared on Fool.com.

Federico Zaldua has no position in any stocks mentioned. The Motley Fool recommends Petroleo Brasileiro S.A. (ADR).

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