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Russian Countersanctions – Are Your Stocks at Risk?

Energy, autos and even booze companies all have something to lose in the international crossfire

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Russia made news last week by shutting down four Moscow McDonald’s (MCD) restaurants, ostensibly for health code violations. But the move is widely viewed as Russia’s latest “countersanction” against the West in retaliation for Western sanctions against Russia for its involvement in Ukraine.

russia iconic st basil cathedral
Source: Flickr

Funnily enough, McDonald’s first Russian restaurant — opened in 1990 when Russia was still the communist Soviet Union — is the most-visited McDonald’s location in the world.

While Russia is one of the company’s biggest markets outside of North America, the closures are expected to be temporary and are not expected to inflict major long-term damage on MCD stock.

Other Western companies might indeed feel the pinch, and not just from Western sanctions or Russian countersanctions. Russia’s economy also is contracting, potentially taking consumer spending with it.

Which means varying risks for the Western companies with strong ties to Russia:

Daimler (DDAIF)

I’ll start with German luxury automaker Daimler (DDAIF), maker of the iconic Mercedes-Benz. Daimler has been steadily increasing its presence in Russia, and as recently as July, the company planned to start manufacturing Mercedes cars in Russia.

Daimler’s sales in Russia have also, up until very recently, been growing at a blistering pace. In the first half of 2014, Daimler sales in Russia were up about 20% after rising about 19% in 2013. But with Germany now leading the sanctions charge, its companies are now at risk. And Western automakers are a likely candidate in the event that there is another round of countersanctions — likely the driving fear in DDAIF over the past month.

German stocks, as measured by the iShares MSCI Germany ETF (EWG), were down about 13% from the June peak to the early August trough, though they have recovered modestly since then. Over the same period, Daimler was hit harder, down about 18% before recovering slightly.

But Daimler investors shouldn’t be worried. Although Russia was a promising market for Daimler — and might be again once Ukraine fades from memory — Russia is not one of Daimler’s biggest markets. Last year, only 44,376 autos, or 3% of Daimler’s global sales, came from Russia — were that amount to fall to zero (which is unlikely), it wouldn’t be catastrophic to Daimler’s business.

Taking a bigger picture, while Russia is a promising export market for Germany, Germany’s exposure to Russia is overstated. Russia accounts for only about 3% of total German imports, making Daimler pretty typical as far as German companies go.

Meanwhile, Daimler sells for a very reasonable 10 times earnings and sports a 3.6% dividend yield.

Heineken (HEINY)/Carlsberg (CABGY)

Heineken (HEINY) recently warned that its sales volumes were down more than 10% in Russia, and this was before the effects of any countersanctions.

But as a diversified global brewer, the slowdown in Russia is not particularly damaging for Heineken. Heineken’s most promising growth markets are in Africa, Latin America and Asia. The entire Central and Eastern European region, of which Russia is a part, accounted for only 10.1% of operating profit last year.

I can’t say the same for rival Carlsberg (CABGY).

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Article printed from InvestorPlace Media,

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