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Why Arcos Dorados, MercadoLibre, and Livent Slumped Today

By Dan Caplinger - Aug 12, 2019 at 4:32PM

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Some big news affected Latin American stocks, while analysts didn't like everything they saw from one company.

Monday was a bad day on Wall Street, with investors reacting negatively to a host of factors hitting the financial markets. Tensions between the U.S. and China remain heightened, and global economic challenges were evident in areas around the world. Although major indexes were generally down 1% to 1.5%, some stocks got hit much harder. Arcos Dorados ( ARCO 2.17% ), MercadoLibre ( MELI -6.75% ), and Livent ( LTHM -3.57% ) were among the worst performers. Here's why they did so poorly.

Argentine elections hit Latin American stocks

Stocks across Latin America came under pressure, with restaurant operator Arcos Dorados seeing its stock drop 12% while e-commerce giant MercadoLibre's shares were off nearly 10%. Mauricio Macri, who is Argentina's current leader, suffered a large defeat in the first round of the nation's elections, calling into question the work that Macri has done to try to rescue the South American nation's economy. Although many expected Macri to do poorly because of the recent economic difficulties the country has faced, the size of his defeat to challenger Alberto Fernandez was much larger than anticipated.

McDonald's store on two stories with shrubbery nearby and sun shining.

Image source: Arcos Dorados.

Financial markets fear that defeat for Macri could throw Argentina back into economic chaos, and that would be bad news for stocks across the region. In particular, as the primary franchisee for McDonald's restaurants in South America, Arcos Dorados has significant exposure to Argentina and needs economic prosperity there in order to prosper. Meanwhile, MercadoLibre has built an e-commerce juggernaut across Latin America, but its success in Argentina has been offset by currency pressures and other economic challenges. Until the final results of Argentina's elections come in later this year, investors will have to watch closely to see what impact ongoing uncertainty has on both Arcos Dorados and MercadoLibre.

Livent deals with a downgrade

Finally, shares of Livent fell 11%. The lithium producer's stock had seen a big jump last week, as its second-quarter financial report inspired confidence in the company. Yet those results also included a big ramp-up in costs because its mining production volumes were insufficient to meet its commitments to its supply contract customers. Analysts at Merrill Lynch called into question Livent's ability to turn things around quickly, noting that demand for lithium might drop off as well. Couple that with the fact that Livent's primary mining operations are in Argentina, and you have a confluence of events that explain the pullback in the company's stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
MELI
$1,052.95 (-6.75%) $-76.27
Arcos Dorados Holdings Inc. Stock Quote
Arcos Dorados Holdings Inc.
ARCO
$5.17 (2.17%) $0.11
Livent Corporation Stock Quote
Livent Corporation
LTHM
$27.85 (-3.57%) $-1.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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