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A Bull on the Argentine Farm

NEW YORK (TheStreet) -- Two months ago, I wrote a column that expressed my concerns with investing in Argentina. The country's government has exhibited behavior that is unfriendly to business, and that is putting it nicely.

Over the past year and a half, the Argentine government has seized control of the country's largest oil and gas company, YPF (YPF), and instituted price controls to combat inflation. Those moves were enough to send many investors looking for greener pastures.

I've owned some pretty green pastures in Argentine farming giant Cresud (CRESY), which owns 1.6 million acres of farmland, roughly the size of Vermont, New Hampshire, and Connecticut combined.

Although I rarely move in and out names, I've owned Cresud on a few separate occasions. Last year, when Argentina moved to seize YPF, I avoided taking a new position until the dust settled and the price fell enough to present a large enough margin of safety.

Cresud fell from $13 in late March 2012 to less than $7 by early June. That created the margin of safety I required, and I took a new position, which was closed in November after a 20% run-up.

By this past April, shares were approaching $10, but something was not quite right, and was the basis for my April column on Argentina. Cresud had declared a fat dividend of 50.4 cents in November that it still had not paid by April.

Historically, the company's November dividend is paid in December. While details were sketchy, it was first reported that the Argentine government was not allowing dividend payments to foreigners, and later that the company needed the Central Bank of Argentina to approve the distribution. Either way, this was yet another reason to be wary of Argentina.

Since April, Cresud has fallen nearly 35%, and the dividend was finally paid in mid-June. While there are still concerns about investing in Argentina, that price drop and the ultimate overdue payment of the dividend created enough margin of safety to re-establish a position in Cresud.

Besides the massive amounts of farming land, Cresud owns a 64% stake in Argentine real estate company IRSA (IRS), which alone is worth about $260 million based on IRS' current market cap.

Cresud's current market cap is just $342 million. The stock trades at less than nine times 2014 earnings estimates and 62% of book value. The company does have substantial debt of $725 million.

Cresud is not for the faint of heart, for sure. It operates in an country where hyper-inflation is a risk and the government is not a friend to business. The company's package of assets, however, is the reason I've owned it in the past and have taken a new position.

Buyer beware!

At the time of publication, the author was long on Cresud.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

At the time of publication, Heller was long XXXX.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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