Are Russian stocks a buy? Some of the smartest people I know think so.
At dinner with hedge fund-great Jim Rogers in Las Vegas a few weeks ago, he told me it was his favorite world equity market, although he was tight-lipped about what he was buying.
My long-time friend and colleague Dr. Steve Sjuggerud, a superb analyst and editor of True Wealth, is also bullish on Russia.
[ad#Google Adsense 336×280-IA]And there’s no doubt that Russian stocks are on the remainder table.
The country’s 50-stock Micex Index is among the cheapest in the world, selling at just five times estimated earnings.
The average emerging market currently sells for 10 times prospective earnings.
However, there are more than a few negatives here, starting with President Vladimir Putin, hardly the best friend of liberal democracy and free-enterprise.
Still, Putin is eager for stronger economic growth and is pushing the country’s central bank to promote it. Not surprisingly, the bank quickly responded with a new policy tool, allowing banks to borrow for 12 months against non-marketable assets.
Also, Russia’s economy grew at 1.9% in the second quarter, near the slowest pace in four years. Yet bulls argue that firmer oil and gas prices will bolster the commodity-oriented economy in the second half.
Breakout Possible
The important thing to remember is that when equity markets get this cheap, they can really pop. Last fall, for instance, I was pounding the table for Japan, noting that even if the Nikkei 225 doubled it would still be cheaper than the U.S. market. Beginning in November, the Tokyo market surged over 40% in less than six months.
Could the same thing happen in Russia? No one knows for sure. But the Russian market is among the cheapest in the world. Firmer energy prices could lead to a surge in economic growth and corporate earnings. And this is a market that would almost certainly lend some diversification to your portfolio.
So how do you play it? One way is the Market Vectors Russia Fund (NYSE: RSX), an exchange-traded fund with relatively low expenses (0.6%) and a 3% yield. Another is the closed-end Templeton Russia Fund (NYSE: TRF). Managed by investment legend Mark Mobius, it currently sells at a 10% discount to its net asset value.
However, as I wrote in a column a few weeks ago, I’m not a big advocate of buying a “country” or a particular world “market.” It’s far better to buy individual companies in those countries poised for spectacular growth.
Fear of Banks
One we’ve been buying in my Momentum Alert trading service is Qiwi PLC (Nasdaq: QIWI).
Believe it or not, less than half of Russians over the age of 15 have bank accounts. And they don’t trust the credit cards that banks issue either. More than 90% of Russians pay bills and make purchases using cash. But carrying your money around (or leaving it home) is not just risky, of course, but dangerous.
Qiwi is the nation’s largest operator of nonbank self-service payment kiosks. Account holders deposit cash into the kiosks for safekeeping and choose screen options to pay bills and move or withdraw money.
There are more than 165,000 Qiwi-branded kiosks across Russia and former Soviet states. The company also allows customers to use their cellphones to move money. It also offers a service called Visa Qiwi Wallet that that is similar to eBay’s PayPal.
The numbers at Qiwi are superb. In the most recent quarter, earnings soared 365% on a 32% increase in revenue. The company has double-digit operating and profit margins and the balance sheet is strong. I estimate net income will climb from $1 a share this year to more than $1.50 in the year ahead.
So while the Russian market may be a good buy, the best companies are even better ones. Qiwi, in my view, is one of them.
Good investing,
Alex
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Source: Investment U