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Summary

  • Politics is not the economy. It has temporary impacts on the economy, no doubt, but economies always find a way around political stupidity.
  • What I’m saying is: Act on logic, not emotion.
  • As an investor, our aim is to use the market against itself, to look past the smoke that clouds the present and to see the sunnier future that exists.

Is there anything better to an investor than buying a sure-thing at dollar-store prices?

Let me throw some numbers at you to make my point: price-to-earnings multiple of 7.2, 61% cheaper than the U.S.; price-to-revenue multiple 57% cheaper; price-to-tangible book-value 80% cheaper. Return on assets, 67% better than America. Net-income margins, nearly 40% stronger.

These are some of the metrics I look at when gauging stocks and stock markets, be they big developed markets like America, or a less-big emerging market like, in this case ….Russia.

Yes, Russia.

The country's leading stocks, Russia's version of the S&P or the Dow Jones Industrial Average, represent a remarkable opportunity for investors who can see past what will ultimately prove to be a temporary flap over Ukraine. Russian stocks are simply too cheap … they're as close to a sure-thing as I can find in global stock markets today.

Let's dispatch with Ukraine immediately so that we can focus on the opportunity in Russian stocks and not the obstacle.

Ukraine, while significant in its own, limited way, is not a watershed moment in European history. It's just another country, of which there have been scores, in which political divisions are rendering asunder one state's current borders. This is not revolutionary. It's geographic evolution, technically no different than Germany reuniting or Czechoslovakia cleaving in two. Admittedly, Russia isn't managing the moment well, but that's a function of an egotistical and emboldened Vladimir Putin happily poking his finger into the eyes of Western leaders who have been humbled - if not neutered - by a financial crisis of their own making.

But politics is not the economy. It has temporary impacts on the economy, no doubt, but economies always find a way around political stupidity.

When you step back from the Ukraine issue, you are left with a country - Russia - that stands out among emerging markets. Among the infamous BRIC quartet, Russia already leads the pack with 55% of its population in the middle class (Brazil has 30%, China 21% and India 11%). By 2016, Russia will overtake Germany as Europe's largest car market, and by 2020, it should overtake Germany as Europe's largest overall consumer market.

More than 15% of all households in Russia already earn more than $50,000 a year, and consumer products like fashion, footwear, tourism, video games, financial products and others are growing by 8% to 15% or more - far in excess of Western growth rates in the same industries.

The public companies inside Russia's MICEX index, the country's leading stock-market index, are growing their revenue and earnings at mid-double-digit rates. And Russian stock valuations are at such low levels - and the dividend yields are at such high levels - that, combined with economic growth, the Russian market could grow more than 20% a year, on average, over the next several years. The U.S. markets, already at record levels and facing a new threat - rising interest rates now that the Fed is backing off its stimulus plan - will be lucky to grow at a quarter of that pace.

Granted, Russia's economy has slowed because of the Ukraine issue. But, again, that's a temporary matter. It won't persist.

As an investor, our aim is to use the market against itself, to look past the smoke that clouds the present and to see the sunnier future that exists.

Too Cheap, But That Will Change

It's easy to dislike Russia today - and clearly Americans do. A USA Today graphic from earlier this week showed that 68% of us see Russia as the "unfriendly enemy," almost the polar opposite of 2006 when 73% of us considered the Russians a friendly ally.

I get it.

But I look at investment facts dispassionately. I want to find where the opportunities exist and I want to exploit them.

Russia today is the best opportunity in the major emerging markets.

As always, I would normally recommend you own individual Russian stocks, such as Gazprom, Novatek, Sberbank or Dixy Group. Alas, those either don't trade in America, or they trade very lightly in the Pink Sheets, and I would not recommend you venture into that arena to buy foreign stock in general and Russian stocks in particular.

Instead, look to own a broad-market Russian ETF that trades here in the States … like the Market Vectors Russia ETF (NYSE: RSX). Of the limited selection of Russian ETFs, this one stands out. Several are leveraged three-to-one, and no one needs that kind of risk unless you're a gambler - and if you're a gambler you should be in Atlantic City rather than Lower Manhattan. Second, RSX owns a broader basket of stocks, including small- and mid-cap Russian companies that are generally faster growing. Competing ETFs tend to own just the largest names on the Russian exchange.

RSX is off sharply this year, down more than 21%, in line with sentiment toward the country right now because of the Ukraine dustup. But, again, you must look past the immediate moment and grab valuable assets when others are willing to give them away at fear-induced prices. Then you hold them until the market once again recognizes the value of those assets.

What I'm saying is: Act on logic, not emotion.

And logically, Russia is too cheap. That won't always be the case, however. Take advantage of the opportunity while you have it.

Source: Russia: The Cheapest Emerging Market You're Overlooking