Gazprom: Cheap Stock with Political Risk

Buy-recommended Gazprom (OGZPY.PK) has the most natural gas resource potential among oil and gas stocks, subject to political risk, and trades at near the lowest ratio, one third, to its 200-day average stock price of any stock in our coverage. First quarter results released on October 22 disclosed natural gas sales of 71 billion cubic feet daily, or 12 million barrels oil equivalent daily. That is more than the volume of the world’s largest oil producer, Saudi Arabia.

In a more seasonal pattern, Gazprom’s cash flow has been advancing along with that of six major oil companies. Yet the price Gazprom realizes is less than a third the six major oil companies' average. Europeans pay twice Gazprom’s low average while Russians pay half the average. Political risk was demonstrated with capital fleeing Russian markets when Russian troops entered neighboring Georgia in August.

At the same time, stocks in emerging market countries including China and Brazil have declined more than in developed countries. We deal with geographic risk by limiting emerging market buy recommendations including Gazprom to two of our eleven current buy recommendations. We deal with global financial risk by limiting buy recommendations to eleven of the 36 oil and gas stocks in our main coverage.

Originally published on October 23, 2008.