by Alyssa Oursler | July 22, 2013 3:22 pm
Russia keeps grabbing headlines as it decides what to do with American fugitive Edward Snowden — the former NSA contractor who recently revealed top secret information about the agency’s mass surveillance.
But there’s more than just a whistleblower hiding out in the giant country.
Although Russia is one of the four BRIC emerging markets — once thought to be home to huge growth — investors often fear putting their cash into the country because of corruption, red tape and other concerns.
Such skepticism seems more than justified so far this year. Just last week, investors fled Russian equities to the tune of $9 billion after prominent opposition leader Aleksey Navalny was sentenced to five years in prison — a sign to many that Putin’s politics are anything but fair. All in all, the SPDR S&P Russia ETF (RBL) and Market Vector Russia ETF (RSX) have each fallen nearly 10% this year.
Still, a few Russian stocks have sneakily been soaring so far in 2013, even as most of the country’s equities are sitting in the red. Take a look:
YTD Return: +46%
Google (GOOG) might be the search engine king of much of the world, but Yandex (YNDX) wears the crown in Russia. Even though Google has stolen away some market share, Yandex still has a firm grasp at more than 60% of users.
And that’s just in its homeland. The Russian giant also has been busy expanding into neighboring markets like Turkey and Ukraine, where Internet use is far from saturated. Toss in a recently debuted browser, app store and more, and this is a company on the rise.
Speaking of rising, in its most recent quarter, Yandex saw revenue and earnings improve 37% and 35%, respectively, and YNDX shares have soared 46% since Jan. 1.
Another promising sign: The state-owned company gets the bulk of its revenues from text-based advertising, meaning Yandex is front-running the move to mobile that lots of companies are trying to keep up with. Plus, Yandex just passed Microsoft‘s (MSFT) Bing to become the world’s fourth most popular search engine.
Making that growth even more appealing is the stock’s resilience. Although it slid right after its first-day pop in 2011, YNDX has gained back momentum lately. Its $31 price tag is still off 9% from Yandex’s first day of trading, but still around 25% higher than its $25 offering price. YNDX also got shaken up by the Navalny verdict, but it has already regained those losses and then some.
All in all, Internet use isn’t going anywhere, and Yandex is perfectly poised to remain the Google of Russia.
YTD Return: +53% (since May IPO)
Another digital company cashing in not just on Russia but its neighbors is Qiwi (QIWI), a leading mobile payments provider. The company is responsible for more than 11 million virtual wallets and over 165,000 kiosks in Russia and other members of the Commonwealth of Independent States, like the post-Soviet nations of Armenia, Belarus and more.
Qiwi came public at $17 a share in early May and was pretty quiet until June hit. Strong earnings and guidance sent the stock soaring, and it simply hasn’t stopped. Now, QIWI is up 57% from its IPO pricing.
That’s some solid momentum in another strong industry. And if you’re skeptical about Russian scams, consider this: Qiwi has partnerships with big names like Visa (V), Amazon (AMZN), Facebook (FB) and leading Russian telecom VimpelCom (VIP).
Instead, the bigger concern I have with the stock is that it has run too far too fast. QIWI is currently trading for 19 times forward earnings on 20% projected five-year growth. That’s relatively fairly valued, but hardly a screaming “buy” signal.
Of course, the fact that Qiwi is a first mover in the mobile payments space is a big deal, considering that, even here in the states, few firms have really risen to the top.
YTD Return: +60%
Last but not least, we have our biggest gainer, but perhaps not the best bet. State-owned CTC Media (CTCM) has been making a comeback in 2013, though it’s hardly the same kind of growth story as our first two Russian hideouts.
To start, we’re not talking about a foreign player in a growing, digital industry. Instead, we’re talking about a state-owned television company that’s far from its glory days.
CTC Media — which operates Russian television networks CTC, Domashny and Peretz — traded for as high as $30 back in 2008, and around $45 as recently as 2010, but has plunged to the $12 level.
That’s including a 60% year-to-date climb fueled by strong Q4 earnings that led to an improvement in its quarterly dividend.
In its most recent quarter, though, the Russian broadcaster saw operating income fall 8% year-on-year in the face of dropping ratings. And while overall revenues are supposed to gain double-digits for the full year, earnings are only expected to increase by 3%.
CTC’s main appeal is its dividend, which yields north of 5%. But if your only interest is income, you can find more reliable high yields outside of risky Russia.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
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