By Scott A. Mathews
Russia, the world’s second largest producer of oil, is benefitting from turmoil in the Middle East. As OPEC announced yesterday that it will not increase supply to compensate for Libya, the barrel rose and Russia as a whole will benefit. Not only buoyed by news that analyst averages for the barrel have risen to $105/bl, Russia is also somewhat of a safe haven amongst emerging markets. While it certainly has problems, very large problems i.e. corruption, property rights enforcement, one thing it does not have (and in many ways contributes to the former) is political stability. At a time when expectations for emerging markets pull back from the altruistic and focus on the truly basic i.e. political and social stability, Russia emerges as a politically stable safe haven of emerging growth markets. With this bump in oil prices looking sustainable, Russia in many ways resembles a runner getting its second wind while already running a good race.
Lukoil (OTCPK:LUKOY) The company's website says it all: “Largest oil company in Russia with over 10 billion barrels in proven reserves, fully integrated from exploration and drilling to distribution and retail.” Lukoil is a giant. Trending up from the mid-50’s since December, the slope steepened significantly in the middle of February, climbing from $64 then to $75 dollars Wednesday. With news out just yesterday that it will be exploring the possibility of U.S. shale reserves, Lukoil reaffirms its status as a global player in the energy field.
Gazprom (OTCPK:OGZPY) Opportunely seizing on the theme of Mideast instability Alexey Miller, Chairman of the Gazprom Management Committee stated “The situation emerging in foreign markets makes the South Stream project even more essential, desired and ever timely.” Russia’s other name synonymous with energy, Gazprom, has just joined forces with Lukoil to cooperate in natural gas extraction and delivery from the Bolshekhetskaya Depression and the Northern Caspian Sea. Additionally, the company is making major progress on its Sakhalin facilities. Broadly speaking, Gazprom is a direct buy into Russian oil and gas at this moment.
Eurasia Drilling [EDCL: LI] This London-based Russian-focused drilling company is on an acquisition spree, with planned outlays of up to $600 million. It is acquiring within Russia, but the fact that its shares are traded in London may reassure investors wary of investing on Russian regulated markets. It has a small market cap of just under $5 billion dollars, but for those that subscribe to the belief that small is nimble, it could be worth consideration.
Market Vectors Russia ETF (RSX) A notoriously volatile fund, this is a prime choice if you’re looking to directly lever your portfolio to the Russian story. Additionally, this could be added to a portfolio in need of commodities exposure. The ETF has risen 9.4% YTD and 25.5% in the trailing twelve months. Give it some consideration, but be prepared for volatility.
CTC Media Inc. (CTCM) We already spoke about CTCM recently in the article 13 Mid-Cap Stocks Headed for Bellwether Status Soon, and this is what we had to say:
An extremely low PEG ration of .51 and a massive dividend at 6.2% make this Russian media darling pop to our eyes – as well as the eyes of 100+ million Russian television viewers. One of the largest Russian media companies, with a 37% rise in the stock price over the past 12 months and sustained, bounding growth projection for EPS. Media and politics don’t always mesh well in Russia, but notwithstanding an incident the numbers suggest that this name that is in Russian homes daily may soon find its way onto the lips of investors.
In the two weeks since publication the stock has risen 3%.
Vimpelcom (VIP) This wireless telecom operator, present operates throughout Russia, CIS countries and most recently, indicative of its acquisitions strategy in frontier markets, Laos! It doesn’t operate directly in Laos, but acquired its way into the market as it has done in Algeria and similarly frontier and emerging markets. Buoyed by the strength of an emergent middle class demand and actively seeking out similar dynamics outside of its home market in Russia, this is a Russian play that is also a good global telecom play.
Mechel OAO (MTL) Integrating the production of coking coal (Russia’s #1 producer and #3 globally) with its steel manufacturing (6th largest in Russia), Mechel is a play that will benefit from rebounds in the general consumer market-- especially car manufacturing. In fact, as oil and other commodities head higher, it should be well geared for the advance in prices.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.