From Russia With Love - And Plenty of Profit

by: Nicholas Vardy, CFA

With Vladimir Putin's face gracing newsstands across the country as Time magazine's 2007 "Person of the Year", we are reminded that it's been nasty Russia, rather than relentless China that has been the single best global investment market in the global stock (and ADR) universe. Despite the pervasive corruption, oppressive anti-democratic politics, and the collapse of its economy that unleashed the financial crisis of 1998, Russia has been a stunning investment opportunity over the past decade. Since bottoming in August of 1998, the RTS index has soared almost 24x. With economic growth exceeding 6% in each of the last six years, and an economy heavily leveraged to the commodity boom, Russia as a play on undervalued natural resources is an investment opportunity of the past. In less than a decade, natural gas giant Gazprom (OTCPK:OGZPY) went from obscurity to one of the 10 largest companies in the world, as measured by market capitalization. Yet with the Russian market lagging its BRIC rivals in 2007, a market did offer pockets of opportunity in the telecom and steel sector this year.

Although Russian companies have been tapping the London stock market to raise capital, there are plenty of opportunities for U.S. retail investors to get in on the Russian boom with the following ADRs and sectors (ranked here by market capitalization):

  • Unified Energy Systems of Russia [USERY.PK] Electricity
  • Norilsk Nickel (OTCPK:NILSY) Industrial Metals
  • Vimpel-Communications [ADR] (NYSE:VIP) Mobile Telecom
  • Mobile TeleSystems OJSC [ADR] (NYSE:MBT) Mobile Telecom
  • Gazprom Neft (OTCQX:GZPFY) Oil & Gas Producers
  • Mechel OAO [ADR] (NYSE:MTL) Industrial Metals
  • Rostelekom OAO [ADR] (ROS) Fixed Line Telecom
  • Polyus Gold (OTCPK:OPYGY) Industrial Metals
  • Wimm-Bill-Dann Foods OJSC [ADR] (NYSE:WBD) Food Producers
  • Uralsvyazinform (OTC:UVYZY) Fixed Line Telecom
  • VolgaTelecom (OTC:VLGAY) Fixed Line Telecom
  • Sibirtelecom (OTC:SBTLY) Fixed Line Telecom
  • Surgutneftegaz (OTCPK:SGTZY) Oil & Gas Producers
  • Lukoil (OTCPK:LUKOY) Oil & Gas Producers
  • Gazprom (OTCPK:OGZPY) Oil & Gas Producers

Disclosure: Author has a long position in some of the above-mentioned securities