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Robert Duval
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Professional Independent Trader, 15 years. Started as a equity index futures floor trader, now day and swing trade, stocks, treasury futures, index futures and commodities. Believe in correlation of markets, must undertand all markets to trade one well. (aka Jim Rogers) Self taught by... More
  • BUY CRISIS - BUY Russia Now! (MBT) 3 comments
    Apr 26, 2014 2:40 PM | about stocks: MBT, RSX

    Crisis and Opportunity live in harmony.

    This brief post will make the case for an investment in Russia now, and specifically Mobile Telesystems, which trades as a US ADR (NYSE:MBT)

    (click to enlarge)

    MBT data by YChartsWe as investors are emotional beings. When faced with conflict, a powerful inner fight / flight response is natural. When faced with CNN headlines screaming "crisis in Ukraine" and "pending invasion" and CNBC exhorting us to get out of emerging markets and stay in the "safe harbour" of US stocks, it is difficult to do anything but run. It would seem the safe and prudent thing to do.

    But this is exactly why most investors underperform the averages over long periods of time.

    I had the opportunity to personally visit Egypt immediately prior to the military coup in the summer of 2013. Remember that? "Crisis in the Middle East" Long forgotten in our fast paced Twitter world. What crisis?

    While I was there, I notice from an up close and personal perspective, that in spite of many issues and a terrible atmosphere, business carried on. Roads and housing subdivisions were being built. Commerce was occurring. I had many conversations -- with other foreigners , and the advice given to me, in spite of my positive observations, was I'd be a fool to invest. This was pretty unanimous.

    I also learned the local people actually favoured the military as rulers, contrary to CNN, and that a change would be a positive step and bring back some certainty. I also viewed Egypt as too strategically important to be allowed to disintegrate.

    Through all this I saw a deeply contrarian buying opportunity in a country ETF with a good yield, so I began to invest at the height of the crisis headlines, in the low 40's basis (NYSEARCA:EGPT). After the coup I invested more, and I netted in excess of a 50%gain within 6 months while collecting substantial dividends

    (click to enlarge)

    EGPT data by YCharts

    I believe a similar pricing opportunity exists in Russia today.

    On any metric, Russia's stock market is among the cheapest, most beaten down, out of favour in the entire world, with a P/E ratio in the 5 range. One option for an investment in Russia, would simply be the (NYSEARCA:RSX) etf, with a yield in the 3.5% range.

    However I believe a better opportunity exists within a core and growing industry in any developing country, with a greater margin of safety, and that is in telecommunications, specifically Mobile Telesytems. (MBT)

    MBT is the leading mobile provider in much of Russia and the surrounding states, including substantial Ukraine operations. They recently announced financial results indicating steady growth.

    This stock trades at a PE of 6 with an attractive yield of 5.5%. As recently as October the Stock was trading in the 24 range, my initial target today, from the 16 area now.

    I note; in spite of the news intensifying late in the week towards a Russian military buildup, (MBT) refuses to trade down to the early March lows at 15, indicating much of the uncertainty has been discounted by the market.

    Much like in Egypt, I expect that in spite of the headlines, new LTE networks will continue to be built out, and folks will continue in Russia to be tied to their mobile phones day and night, much like we are. I doubt very much the CNN coverage will stop people from mobile usage.

    Any good article also needs to examine the risks. There is always a chance, that MBT is completely nationalized by the Gov't in some radical view of the future. However, with the country controlled by powerful, wealthy interests, it is difficult to see widespread future nationalization. Also an obvious risk is a full - on return to a Cold War scenario, which would obviously change the picture. However, I simply do not believe in that scenario at the present time, and believe the risk / reward is heavily tilted to the upside.

    To summarize; I see MBT as another excellent opportunity to enjoy a 5% yield, with an upside of at least 50% within a year.

    Long MBT

    Disclosure: I am long MBT.

    Additional disclosure: Not remotely investment advice. Consult a qualified adviser.

    Stocks: MBT, RSX
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Comments (3)
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  • Land of Milk and Honey
    , contributor
    Comments (8888) | Send Message
    Very interesting idea - and nicely laid out.


    What about the risk that in a localized war that's called a skirmish, the (MBT) infrastructure is damaged in Ukraine? What % of business is in or near Ukraine or other satellite states it could spread to?


    Chart-looking - it's down since an Oct '14 high. When did the crisis start? I thought more recently? So what business factors are a risk here?


    (RSX) seems a risk with the sanctions going on (hence the SnP & other's downgrade of Russia's bond rating.) Could extended sanctions hurt (MBT) - or would this recovery into some worthwhile profit be bound to happen before then?


    Value and dividends are in RUB. I don't follow Forex. Is there risk of RUBs being degraded compared to Dollars?


    Someone in the recent SA article on (MBT) mentioned MegaFon (MFON:LI) as a better option. What do you think? (They list reasons there.)


    ...just some questions that come to mind, DD...
    27 Apr 2014, 06:37 AM Reply Like
  • Robert Duval
    , contributor
    Comments (7852) | Send Message
    Author’s reply » L, I don't know (LI). Price started falling as soon as markets caught a whiff of the tension, long before headline news.


    I'll answer the other questions as one. All risks are possible. However I believe most are already built into the price.


    In (all of) these type situations, if you want the certainty of nothing bad happening, you will never get the price. It's an investing choice. Troops pull back from the border -- bam that's an 18-19 dollar stock. Instantly.


    I look for situations of maximum uncertainty to buy an asset, because, thats where the greatest opportunity lies.


    Professionals trade for appearance not results. Clients don't want you holding Russian stocks, as they are afraid. So the pros can't do the trade even if they like it.
    27 Apr 2014, 09:34 AM Reply Like
  • Robert Duval
    , contributor
    Comments (7852) | Send Message
    Author’s reply »


    Comments from CFO. Nothing too concerning.
    28 Apr 2014, 07:19 AM Reply Like
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