With most expecting Greece to default on its debt in the next few weeks, value investors are already anticipating whether any stock bargains will be emanate from the eventual re-structuring.
After Russia defaulted in 1998 and Argentina defaulted in 2001, both countries had bargain stocks that value investors scooped up for pennies on the dollar.
First, I went back and researched some blue chip Argentine stocks that were absolutely crushed after the Argentine government defaulted. For example, Telcom Argentina (TEO) went from $45 to $0.65 in 2002. However, the price quickly rebounded to over $10 a share after Argentina defaulted.
I also remember Marc Faber recommending Cresud (CRESY) after its shares dropped from $10 to about $4 at the peak of the crisis. Faber’s recommendation was brilliant as the shares quickly rebounded to $15 only two years after the government default.
One of the country’s largest banks, BBVA Banco Flores dropped from $30 to $1.45. Only a year after the default the shares rebounded to $10.
Will a similar situation play out in the aftermath of a Greek default? If so, what are the stocks that are likely to rebound the quickest?
In the Argentine example, blue chip companies that provided essential services were the survivors. Banks, telecom, electricity, and food were all industries that had to survive in one capacity or another.
It’s important for value investors to be patient and perhaps wait as much as six months after the Greek default to purchase assets. The Argentine washout took several months and it was not uncommon for vulture investors to lose their shirts as the cheap stocks got even cheaper.