Author Topic: Why are Russian stocks so cheap?  (Read 63412 times)

rukawa

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Re: Why are Russian stocks so cheap?
« Reply #20 on: March 07, 2014, 09:04:46 PM »
I have decided to invest in Russia. I know little about the country, little about the politics and I believe the country is very corrupt. But at a 4 p/e I think it doesn't matter. I am considering two investments:  Market Vectors® Russia Small-Cap ETF and Gazprom. Gazprom sells at like a 2  p/e and its State owned and its basically a piggy bank for the corrupt Russian government.

Putin will probably take my cookies from Gazprom but at a 2 p/e how many cookies is going to get? And he isn't going to touch small cap Russian companies...just too small. To me this is a no-brainer by which I mean you need little research or understanding to make these investments. The low valuation is so important it overwhelms everything else.


plato1976

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Re: Why are Russian stocks so cheap?
« Reply #21 on: March 07, 2014, 09:13:57 PM »
I find this argument very convincing:

"he isn't going to touch small cap Russian companies...just too small. "


I have decided to invest in Russia. I know little about the country, little about the politics and I believe the country is very corrupt. But at a 4 p/e I think it doesn't matter. I am considering two investments:  Market Vectors® Russia Small-Cap ETF and Gazprom. Gazprom sells at like a 2  p/e and its State owned and its basically a piggy bank for the corrupt Russian government.

Putin will probably take my cookies from Gazprom but at a 2 p/e how many cookies is going to get? And he isn't going to touch small cap Russian companies...just too small. To me this is a no-brainer by which I mean you need little research or understanding to make these investments. The low valuation is so important it overwhelms everything else.

turar

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Re: Why are Russian stocks so cheap?
« Reply #22 on: March 07, 2014, 09:20:36 PM »
I find this argument very convincing:

"he isn't going to touch small cap Russian companies...just too small. "


For one Putin there are hundreds lower-level officials in his court and protection, for whom they won't be too small.

Packer16

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Re: Why are Russian stocks so cheap?
« Reply #23 on: March 07, 2014, 09:26:54 PM »
If you look at the composition of the ETF I think you will find strategic sector companies (gas pipelines, electricity generators/distributors and airlines) that Putin may take the cookies too.  One note about Russia is that there has only been one nationalization (Yukos) and that was run by a guy who actively opposed Putin politically.

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Palantir

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Re: Why are Russian stocks so cheap?
« Reply #24 on: March 07, 2014, 09:53:05 PM »
I've been drinking, but CTCM looks good. I'd prefer to stay away from strategic assets like energy or minerals, and focus on firms that are paying dividends from their FCF.
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yadayada

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Re: Why are Russian stocks so cheap?
« Reply #25 on: March 08, 2014, 02:58:56 AM »
it seems that if they paid dividends/stock buybacks, and it is a good business trading at a cheap multiple, the corruption is probably already factored in when you look at the bottom line. Lets say a company makes 50 million$ a year. Cost of goods sold is like 250 million, then corruption is probably already part of this 250 million$ cost. In the US COGS might be only 210 million $ for the same company.

So if you can get this company for a PE of 5, it seems that corruption has to go up by alot over the next years to make it a bad investment. And COGS has to go up another 20 million$ in corruption or so for you to break even. But if COGS has been steady over the past years, that seems unlikely? Especially if it will hurt the country. Because at some point corruption will actually hurt putin you would think.

Liberty

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Re: Why are Russian stocks so cheap?
« Reply #26 on: March 08, 2014, 08:37:48 AM »
it seems that if they paid dividends/stock buybacks, and it is a good business trading at a cheap multiple, the corruption is probably already factored in when you look at the bottom line. Lets say a company makes 50 million$ a year. Cost of goods sold is like 250 million, then corruption is probably already part of this 250 million$ cost. In the US COGS might be only 210 million $ for the same company.

So if you can get this company for a PE of 5, it seems that corruption has to go up by alot over the next years to make it a bad investment. And COGS has to go up another 20 million$ in corruption or so for you to break even. But if COGS has been steady over the past years, that seems unlikely? Especially if it will hurt the country. Because at some point corruption will actually hurt putin you would think.

But what if you can't trust the financial statements, or that contracts will be enforced? That's another way in which corruption/weak institutions can screw you.
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yadayada

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Re: Why are Russian stocks so cheap?
« Reply #27 on: March 08, 2014, 08:49:55 AM »
Shouldnt you see that in the cash flow statements? I supose if they are expanding then it could be problematic to see that. But if it is a steady eddy business, they should generate alot of free cash flow right?

And ofcourse make sure the free cash flow doesn't come from selling off assets or other questionable stuff.

EliG

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Re: Why are Russian stocks so cheap?
« Reply #28 on: March 08, 2014, 11:05:50 AM »
Those of you thinking about buying Russian ETF, read Ben Inker's (GMO) thoughts on lagged value. Buying countries that were the cheapest one year ago beats buying countries that are the cheapest today. Value+Momentum > Value. See Page 11.

http://www.gmo.com/websitecontent/GMO_QtlyLetter_ALL_4Q2013.pdf

constructive

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Re: Why are Russian stocks so cheap?
« Reply #29 on: March 08, 2014, 11:16:57 AM »
Those of you thinking about buying Russian ETF, read Ben Inker's (GMO) thoughts on lagged value. Buying countries that were the cheapest one year ago beats buying countries that are the cheapest today. Value+Momentum > Value. See Page 11.

http://www.gmo.com/websitecontent/GMO_QtlyLetter_ALL_4Q2013.pdf

Russia was the cheapest market a year ago too.