Three cheap Russian stocks investors should keep an eye on are Yandex N.V. (Nasdaq: YNDX), Mobile TeleSystems Public Joint Stock Company (NYSE: MBT) and VimpelCom Ltd. (Nasdaq: VIP). The bear market in Russian equities and the ruble has led to severe declines in these stocks. However, they continue to have solid fundamentals and long-term profitability less tied to oil prices.
Oil Bear Market
The plunge in oil prices from summer 2014, continuing into 2015, has devastated the Russian stock market. Over this time period, the Russian market was halved along with the price of oil. Russia and oil are inextricably linked due to oil being the country's primary export. The country's entire budget depends on its revenues from oil exports.
The decline in oil prices has led to serious political problems within the country and severe weakness for the currency. These are important factors for foreign investors to consider as their investments are at risk with political troubles and deflate in value from a weakening currency. To compensate for these risks, investors must insist on sufficient upside.
A necessary component is an analysis of oil prices as continued weakness in oil leads to weakness in Russian equities, especially priced in another currency. At some point, this fear translates into exceptional buying opportunities. Yet, investors should be aware no rally is able to sustain itself until oil bottoms.
Yandex
These specific stocks have been chosen because they take advantage of entrenched, secular trends that persist regardless of whether oil goes back to $100 or falls all the way to $10. Yandex is essentially the Google of China. It is the dominant search engine in the country with over an 80% share of the search market. Additionally due to the unique syntax of the Russian script, there is a wide barrier to entry for competitors.
This moat makes Yandex a solid, long-term bet. The Internet continues to invade more and more aspects of people's lives all over the world, including Russia. Weak economic growth can affect the rate of this trend but it does not reverse the trend. Despite the economic weakness, Internet penetration is continuing in Russia unabated. Like Google, Yandex will thrive as the gateway for Russians to search the Internet.
Mobile TeleSystems
MBT provides telecommunications services in Russia. It is the largest provider of mobile and fixed-line services for cable TV, Internet and phone. These services have become necessities in this day and age. This is reflected in the financials of MBT, which have remained steady in terms of revenue. The economic turmoil has affected the company's ability to issue credit, and the weakness in the ruble has led foreign investors to dump shares.
However, the company has continued to pay its dividend, which is 18% as of August 2015. It is very reasonably priced with a forward price-to-earnings (P/E) ratio of 7 and very rich gross margins. This is a stock with a healthy margin of safety. The dividend will pay investors while they ride out the short-term hiccups.
VimpelCom
VimpelCom is a Russian provider of mobile services. Unlike MBT, which operates domestically, VIP operates all over Europe. This diversified revenue makes it an optimal candidate to survive these turbulent periods and thrive when conditions improve. Unfortunately for VIP, it has suffered due to intense competition and increased costs from the weak ruble.
Like MBT, VimpelCom has a reasonable forward P/E ratio and can be considered a value candidate. However, there is considerably more risk despite its diversified operations. The company is losing money as of August 2015 with declining revenues. Additionally, its credit was downgraded exacerbating troubles. Given its distressed condition, VIP has the highest upside if the Russian economy manages to recover.
