There Are Safer Ways To Get Exposure To Russia

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Includes: DE, F, KO, MCD, PG, RSX, XOM
by: Jacob Steinberg

Russia is a mysterious country. It is one of the BRICs and it has a fast growing economy due to revenues of oil and natural gas. Many investors want to invest in Russia and take a bite from the growth pie of the country; however, it is it is wise to be skeptical when talking about Russia. We are talking about a country where Vladimir Putin has too much power and we all know what he is capable of when he wants to.

At this point, buying stocks of Russian companies is a bit too risky. Whenever a Russian company becomes too wealthy, it attracts unwanted attention of Russian government and an interesting game begins where rules are made in such a way that no one can win against Russian government. Corruption put aside, there is no telling when or if a given successful Russian company will get "nationalized."

Another example is Sergei Magnitsky, a lawyer who died in a Russian jail after he uncovered a fraud of $230 million conducted by tax police. Mr. Magnitsky was representing a hedge fund that got kicked out of Russia recently.

Then how can an investor find a relatively safe investment that allows one to get exposure to Russian growth without being exposed to multi-level corruptions in Russia? There is an easy way. One can easily invest in an American, or multi-national, company that grows its customer base in Russia. There are many companies like that and I will provide information on several in this article.

  1. McDonald's (NYSE:MCD): The company is growing fast in Russia after starting doing business in the country 20 years ago. The company is expected to grow by an annual rate of 15% in Russia over the next decade. McDonald's has over 300 restaurants in the country and expects to open another 50 in 2012. In 2010, McDonald's posted the strongest growth in Russia out of all countries.
  2. ExxonMobil (NYSE:XOM): ExxonMobil signed a contract with the Russian government, allowing the company to drill for oil in the arctic shelf north of Russia. In addition, the company will also be able to look for oil in Black Sea, north of Turkey and south of Ukraine. In the future, this can be huge for ExxonMobil who said that traditional oil reserves were depleting and sea drilling was the future of oil.
  3. P&G (NYSE:PG): The company's Russia subsidiary holds a portfolio of over 80 products and has been posting strong growth almost every year since 1991. The company has multiple plants in Russia, and over half of everything sold by P&G in Russia is produced in this country. In fact, the P&G plants in Russia even export to some countries.
  4. Coca Cola (NYSE:KO): Coca Cola has 15 production plants in Russia. The company has been seeing double-digit growth in the Russian market almost every year since it entered the country. Coca Cola will invest another $3 billion in Russia between 2012 and 2015.
  5. Deere & Company (NYSE:DE): Deere benefitted greatly from Russia and in return, the company keeps investing there. Russia has a growing construction and farming industries and this helps Deere a lot. The company already has multiple plants in the country and a significant portion of the company's growth came from Russia in the last few years. The trend is likely to continue as the company is planning to double its Russian production within a few years.
  6. Ford (NYSE:F): Earlier this year, Ford executives were happy about the very strong demand in Russia. In 2011, 2.7 million cars were sold overall in the country, up 30% from a year ago. Currently Ford is building new plants and entering new alliances in Russia, which will allow it to triple its production capacity in the country within a few years. Russian government is actively helping the auto industry in order to speed industrialization process of the country.

Conclusion

These are just a few of the companies experiencing boom in Russia and they may serve well for anyone who wants their portfolio to get some Russian exposure without risking an arm and leg. However, keep in mind that no investment is ever free of risk and these companies might also get hurt in Russia just like BP did. Keep in mind, though, these companies still have a lot of diversified exposure to the rest of the world. Investing a Russian company would be far too risky than investing in a company that does some business in Russia in case things fall apart in the country.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.