Mechel: Huge Upside - But Not for the Faint of Heart

| About: Mechel OAO (MTL)

Mechel (NYSE:MTL) is not for orphans and widows - that much is for sure. But if you can stomach some risk and if you have any money to speculate with, I think this is a great name to get into right now.

If you have never heard of Mechel, it is a vertically integrated steel and power producer in Russia. Recently, the company has been under fire from the Russian Anti-Monopoly Committee due to comments made by Putin. Essentially, Putin accused Mechel of selling their coking coal at inflated prices domestically and evading taxes.

Here is why I think MTL will revert back to its fair value ($50 per share) instead of heading toward Enron land:

  • Russian officials (excluding Putin) are not dumb – they understand that they need sane financial markets if they are going to get any foreign capital inflows. They also know that they need capital inflows in order to improve their infrastructure and revamp their fading oil production.
  • High Russian officials, such as President Dmitry Medvedev and chief Kremlin economic aide Arkady Dvorkovich have already made comments that signaled the government will try and sooth the markets.
    • “We should be especially careful about our market, which is becoming important for ordinary people who invest their money in shares and bonds,” Dvorkovich said. “Any actions by companies or authorities affect market quotes and thus people’s well-being.”
  • Mechel has already said that they will fully cooperate with the Russian authorities, which should mean a fast resolution.( My guess is we will have a ruling in 2-3 weeks max)

And when Mechel recovers, I think it will do so very fast. MTL trades for a FP/E of 3.75 for goodness sakes! This name is very undervalued and underappreciated. Don’t miss your chance to get in cheap on this stock.

Disclosure: Author holds a long position in MTL

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