Argentine Stocks: The Three That Rose the Most in July and Why They Still Have Potential

In July, the Merval rose just over 3%. However, some Argentine ADRs clearly managed to outperform the index. Which ones were they?

We start with the chart of the Merval in dollars:

Despite having a good July, the Merval has accumulated many months of long lateralization since last year's national legislative elections.

The interesting thing is that the trend remains clearly bullish, and the last few months have been positive, as the lows have been increasing.

In this context, not all stocks move the same way. July was led by the energy sector. The top three were YPF (+16%), Pampa Energía (+7.8%), and Edenor (+7.8%), significantly surpassing the market average.

The major player of the month was YPF. The oil company continues to show a significant transformation in its business, with an increasing focus on Vaca Muerta. Today, a large part of the investment thesis revolves around the growth of unconventional production, energy exports, and the development of infrastructure to make Argentina an increasingly relevant player in the regional energy market. The main risk, as always, remains the political and regulatory context.

In second place is Pampa Energía, one of the most diversified companies in the Argentine energy sector. It participates in electricity generation, oil and gas, transportation, and even production in Vaca Muerta. This diversification allows it to rely less on a single business and take advantage of various opportunities within the sector. In a context of increased energy investment, Pampa often ranks among the best-positioned companies to capture that growth.

Completing the podium is Edenor, probably one of the companies that best reflects the process of economic normalization. For many years, it operated under a scheme of heavily delayed tariffs that deteriorated its profitability. The change in tariff policy allowed it to recover revenues and significantly improve financial results. It is a company with great potential, but also very sensitive to regulatory direction.

Now, do these increases mean that the stocks are already expensive? Not necessarily.

One of the most commonly used ways to analyze companies is to compare how much the market pays for each dollar of operating profit. For this, the EV/EBITDA multiple is often used, which relates the total value of the company (including debt) to its ability to generate operating profits.

In other words, the lower that multiple, the cheaper a company looks in relation to the benefits it generates, although it should always be analyzed alongside its growth prospects and the quality of the business.

Let's look at their valuations:

Today, YPF trades at about 4 times EV/EBITDA, Pampa Energía at approximately 4.8 times, and Edenor around 4.1 times. These are valuations that are hardly considered demanding, especially when compared to international energy companies or even to the multiples that the Argentine market itself historically paid at other times.

This helps explain why, even after the strong increases in July, many investors still see value in the sector. The market recognizes that prospects have improved, but it is still not willing to pay multiples typical of a completely normalized economy.

And probably that is the key.

Next year will be electoral, and as happens in every Argentine election, episodes of greater volatility will surely appear. There will be polls, changes in expectations, and moments of uncertainty that can generate significant corrections in prices. That risk exists, and investors need to be aware of it.

However, when one observes the current valuations, it is hard to maintain that there is excessive optimism. If the market were truly discounting a perfect scenario, these companies would probably be trading at much higher multiples.

On the contrary, what prices show is that a significant amount of caution still persists. The country has been improving several of its macroeconomic indicators, inflation continues to decelerate, fiscal balance is consolidated, and long-term prospects are much better than just a couple of years ago. Still, the market continues to assign relatively low valuations.

This does not mean that stocks will rise linearly. In fact, next year will likely be full of noise. But precisely for that reason, it is interesting to look beyond the current situation. If economic normalization can be sustained over time, the earnings of many companies could continue to grow, and moreover, the market could start paying higher multiples for those same businesses.

In conclusion, the three stocks that led July have already demonstrated strength. The question now is not whether they have risen a lot, but how much potential they have left if Argentina continues to undergo a process of economic normalization. And, looking at the current valuations, it feels like the market is still far from discounting the most optimistic scenario.

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