The current U.S. foreign policy is indeed a foreign affair, especially when compared against prior administrations. In the widely anticipated Helsinki summit between President Donald Trump and Russian President Vladimir Putin, Trump was uncharacteristically deferential. Naturally, this behavior sparked a political firestorm, leading to the conclusion that the only winner here is Russia.
As expected, Democrats immediately took shots against the President, but some of the biggest criticisms came from conservative sources. Fox Business host Neil Cavuto blasted Trump’s congenial attitude towards Putin as “disgusting.” Referring to Russia’s disinformation campaign during the 2016 election, Cavuto stated that Trump “is essentially letting the guy get away with this and not even offering a mild criticism. That sets us back a lot.”
The president has few supporters regarding his Helsinki performance, but they do exist. Fox News’ Jeanine Pirro defended Trump while slighting our intelligence community for igniting Middle Eastern conflicts on false pretenses. The network’s Tucker Carlson, though, has been one of POTUS’ most consistent supporters.
Early last year, Carlson blamed NBC for meddling in the election, referencing the infamous “Access Hollywood” leak. Now, Carlson blames the Mexicans for “packing” the U.S. electorate in a bid to push pro-Hispanic policies. It’s fair to point out Carlson’s deflective stance, as these two issues are irrelevant to a foreign government endorsing a disinformation campaign.
But the real shocker rises above politics. Prior to the Helsinki summit, Trump blamed “U.S. foolishness and stupidity” for deteriorating relations with Russia, to the Russian foreign ministry’s delight. He later deferred to Putin’s denials when a reporter inquired about the American intelligence community’s election-meddling findings.
Trump tepidly backtracked his comments, but the damage was done: he threw Americans under the (Russian) bus. Cynically, it’s now time to consider Russian stocks.
Russian Stocks Post-Helsinki Summit: Lukoil (LUKOY)
Senator John McCain once famously quipped that “Russia is a gas station masquerading as a country.” While obviously a dismissive statement, some truth exists in that remark. Russia is a massive natural-resources power. Their energy and commodities sector enabled the country to recover from its post-Soviet-Union collapse.
So how does the Helsinki summit impact Lukoil (OTCMKTS:LUKOY)? Immediately following the controversial meeting between Trump and Putin, LUKOY has demonstrated no discernible impact. Moving forward, I don’t expect much to change. Lukoil shares are driven by general bullishness towards the crude-oil market, and that really is the primary bullish argument.
What worries U.S. lawmakers and our allies is that Trump’s deferential stance could lead to the reduction of sanctions, or perhaps their elimination. That’s obviously a net positive for LUKOY and other related Russian stocks. However, Lukoil is well prepared for sanctions to last for several years.
As a result, LUKOY is probably one of the “safer” bets among Russian stocks, relatively speaking of course.
Russian Stocks Post-Helsinki Summit: Gazprom (OGZPY)
One of the most prominent names among Russian stocks, the Gazprom (OTCMKTS:OGZPY) brand, featured extensively in the recent World Cup. Improving U.S.-Russia relations, which Trump appears desperate to implement, should boost OGZPY stock.
At least, that’s how the theory goes.
In reality, Gazprom shares are down more than 5% over the past week. They’ve lost about 1% for the year, and since Jan 24, it’s down nearly 14%. Some of this is likely due to investor jitteriness towards Russian stocks. However, a large part is seasonality, as Gazprom shares tend to rise ahead of the winter season, when natural gas for heating cold European locales is crucial.
In the immediate timeframe, the Trump-Putin summit has had no impact, or perhaps a negative impact. But in the longer run, Gazprom’s European-pipeline ambitions haven’t changed. Moreover, a thawing in our Cold-War-like relations is bad for American credibility if we don’t hold Russia accountable. However, it’s obviously a positive for OGZPY investors.
Russian Stocks Post-Helsinki Summit: Norilsk Nickel (NILSY)
If any company desperately needs a post-summit lift, it’s Norilsk Nickel (OTCMKTS:NILSY). On a year-to-date basis, NILSY stock is down around 12%. But that’s not the only problem. Throughout the past 52 weeks, NILSY has been all over the map. One day, it’s providing shareholders incredible returns; the next, nothing but despair.
What’s behind the volatility? U.S.-backed sanctions have substantially and negatively impacted Norilsk Nickel. Prospects of further damage resulted in shareholders abandoning ship. Also, as a metals producer, Norilsk’s products don’t represent an existential crisis to its international buyers. You can live without nickel production for a while, but the same can’t be said about crude oil.
However, the company’s ace up its sleeve is palladium. Norilsk is the world’s largest palladium producer, which is a critical industrial precious metal. Efforts that ultimately limit palladium production could eventually skyrocket its spot price, and by logical deduction, NILSY stock.
Norilsk Nickel is incredibly wild and unpredictable, so only gamble if you can handle the heat.
Russian Stocks Post-Helsinki Summit: Mechel Steel Group (MTL)
Few Russian stocks exist that have suffered like Mechel Steel Group (NYSE:MTL). MTL stock is down 41% YTD, negating what appeared a promising recovery back in late 2016. And no, the Trump-Putin summit did nothing for the shares. In fact, MTL is currently off 8% in the past week.
As a mining and metals company specializing in coal and steel, I don’t see Mechel benefitting from a relations thaw. While investor sentiment could certainly boost MTL if the Trump administration abandons sanctions, the issue is that nobody wants steel. And of course, nobody wants coal, either, except as a political ploy for election purposes.
If you consider Mechel’s financials, the story doesn’t get any better. The company is overwhelmingly indebted, and this trend will likely worsen. I’ll concede that revenues have increased strongly since 2015. But its latest earnings report is a concern, seeing that top-line sales slipped nearly 5% from the year-ago level.
MTL could be a contrarian play based on the extremely speculative assumption that shares have hit a bottom, so I’m not entirely discounting the bullish opportunity; just please watch yourself.
Russian Stocks Post-Helsinki Summit: Surgutneftegas (SGTZY)
The tongue-twisting Surgutneftegas (OTCMKTS:SGTZY) is one of Russia’s lesser-known oil and gas companies, at least from our perspective. SGTZY features several energy reserves located in western Siberia. The company itself was formed through mergers of previously state-owned oil firms.
No disrespect to Surgutneftegas’ management team, but as an investment opportunity, SGTZY is incredibly risky. Russian stocks in general don’t give most investors the warm and fuzzies. However, Surgutneftegas has very limited volume. Volume levels are routinely only in the hundreds.
So why bother mentioning SGTZY stock at all? I concede that primarily, it’s for completeness sake. Very few Russian stocks trade in American exchanges, especially after recent controversies and scandals. But one reason you shouldn’t completely dismiss Surgutneftegas is its fundamentals.
Surprisingly, they have strong financials, particularly its no-debt balance sheet. Also, it’s a very profitable company, featuring double-digit operating and net margins, as well as double-digit three-year revenue growth.
Still, don’t mess around with SGTZY stock if you can’t afford to lose your position.
Russian Stocks Post-Helsinki Summit: Mobile TeleSystem (MBT)
Russian stocks aren’t all about energy and commodity plays, as telecommunications company Mobile TeleSystem (NYSE:MBT) demonstrates. In fact, MBT is the largest mobile operator in Russia and the Commonwealth of Independent States, or nations that were previously part of the Soviet Union.
MBT is also one of the Russian stocks that notably increased following the Trump-Putin meeting. Since this week’s opening price, shares are up slightly over 1%. Yes, it’s a modest gain, but it has responded to the Helsinki summit better than its peers.
Moving forward, Mobile TeleSystem is a tricky opportunity. From a bear’s perspective, MBT is down 5% from January’s opener. Plus, broader concerns about the Russian markets have made shares incredibly volatile. But from the contrarian’s view, the negative political sentiment towards Russia provides potential upside to MBT.
Its financials similarly offer a mixed bag. I’m not a big fan of the company’s middling balance sheet, which has uncomfortably high debt loads. But on the flipside, MBT features very strong profitability margins.
As one of few Russian stocks traded in our nation’s top exchange, I’ll give MBT a slight bullish edge.
Russian Stocks Post-Helsinki Summit: Yandex (YNDX)
Among Russian stocks, no other company benefits from the Trump-Putin meeting more than Yandex (NASDAQ:YNDX). Why? Because Yandex is to the Russians what Facebook (NASDAQ:FB) or Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is to us. The Kremlin’s disinformation campaign used social media as its primary weapon. From what we saw in the Helsinki summit, we’re not even going to mention this weapon, let alone demand accountability.
Whether it was overtly stated or not, the American government (via Trump) gave Putin and his cronies carte blanche. By saying what he did about his fellow Americans and his intelligence community in front of Putin, President Trump committed irreparable damage. That’s a big win for the Kremlin-backed trolls trolling on Yandex.
Russian Stocks Post-Helsinki Summit: Qiwi (QIWI)
Unless you’ve just been released from a 30-year sentence from a Siberian prison, you know that digital payments are all the rage. Companies like Paypal (NASDAQ:PYPL) have exploded northbound as they take advantage of this emerging market. Turns out, the Russians are no different, and digital-payments processor Qiwi (NASDAQ:QIWI) looks to take advantage.
From an investment perspective, western sanctions against Russia should have a limited impact on QIWI stock. The company receives most of its revenues from former Soviet countries, as well as a few Soviet satellites like Romania. Plus, these are emerging markets, and they represent a viable growth story.
Also, I admit that Qiwi features solid financials, including a robust balance sheet with zero long-term debt. Profitability margins are decent, but could use some improvement down the line. But as a counterpoint, I’m digging the revenue growth. In its most recent quarter, Qiwi delivered revenues of $112.5 million, up 36.5% year-over-year.
The main drawback is that QIWI stock is very choppy. On a YTD basis, shares are down almost 7%. But given its financial strengths, as well as its exciting industry, QIWI is worth a speculative look.
Russian Stocks Post-Helsinki Summit: Luxoft (LXFT)
Another Russian firm that can desperately use a summit boost, Luxoft (NYSE:LXFT), has suffered significantly throughout this year. Although the software-development firm plies its trade in an exciting industry, geopolitical conflicts weight heavily on LXFT stock.
Prior to the deteriorating relationship between the U.S. and Russia, Luxoft designed custom software for leading multinational companies. But that business might face longer-term pressure because of the current Cold War 2.0. In short, we just don’t trust the Russians, and I’m sure the feeling is mutual. Plus, we’re in the midst of Trump accusing China of stealing our intellectual property, and imposing tariffs.
This is an awkward time to be a LXFT shareholder. Now, to be 100% accurate, Luxoft is no longer a Russian company, per se. But make no mistake about it: Luxoft’s roots are firmly Russian.
That said, Luxoft has a healthy balance sheet, and robust growth metrics. I’m not digging its technical posture, but patient investors can possibly get something out of LXFT.
Russian Stocks Post-Helsinki Summit: Sberbank (SBRCY)
Like a classic Russian novel, Sberbank (OTCMKTS:SBRCY) is beautifully tragic. The overriding story behind SBRCY is how much damage western sanctions have rendered this year. Shares cratered after what appeared to be a promising start. On a YTD basis, SBRCY stock is now down nearly 16%.
But the real story should be its financial strengths, particularly its growth trajectory. From 2014 through 2017, Sberbank’s revenue jumped 65%. In its most recent quarter, SBRCY generated $10 billion, up 12.6% from the year-ago level.
But it’s more than just the growth. Non-interest income, or the income generated from activities such as lending and consulting, is growing by double digits.
That’s a complete reversal from what we’re seeing from many American banks. This suggests that the Russian consumer economy is growing despite the sanctions. But if the sanctions continue, or worsen in scope, SBRCY could find itself in trouble.
And that’s the tragedy: Sberbank is a well-run unit in a politically unstable market.
Russian Stocks Post-Helsinki Summit: Veon (VEON)
Though not a Russian company, the Amsterdam-based Veon (NASDAQ:VEON) has significant business exposure to the former Soviet empire. Through Veon’s Beeline brand, they’re one of Russia’s top-three mobile operators, leveraging 58.2 million mobile customers. Additionally, they boast 2.2 million broadband customers.
Unfortunately for VEON shareholders, this customer base hasn’t translated to confident market performance. Would-be buyers are concerned that shares are down around 20% YTD. That said, VEON has enjoyed a recent resurgence, skyrocketing over 30% since the beginning of July.
But is this company worth the risk? A common theme among Russian stocks is that they feature substantial upside potential, but also significant risks. Veon is no different. True, the company has zero debt on its books, allowing it to invest in future technologies. But on the other hand, revenue growth has suddenly stagnated.
Ultimately, VEON is worth considering as a speculative gamble in light of geopolitical undertones. It’s also a Dutch company, which improves its trust factor from a broader, infrastructural perspective. Still, I would exercise great caution.
Russian Stocks Post-Helsinki Summit: VanEck Vectors Russia ETF (RSX)
If you’re considering Russian stocks but want to limit downside risk, an exchange-traded fund is your best bet. Within this sector, nothing beats the VanEck Vectors Russia ETF (NYSEARCA:RSX). To no one’s surprise, the RSX ETF features mostly energy and commodities-related companies in its top-10 holdings. Its expense ratio is 0.67%, or $67 per $10,000 invested annually.
At the same time, this Russia-centric fund has several non-energy names, including the aforementioned Sberbank and Yandex. Unfortunately, this diversity hasn’t necessarily translated into consistently robust market returns. On a YTD basis, RSX is up only 2%, which is emblematic of this fund.
Its trailing-five-year return is very disappointing, in the red ink by almost 20%. Additionally, the ETF hasn’t moved since late 2014. So while some Russophiles jumped on RSX after Russia’s illegal Crimea annexation, contrarian gambling hasn’t worked out so well.
Why is this? I think many investors fail to appreciate how insanely corrupt Russia’s business landscape is. Some companies might do well, but then others fall to serious scandals. In the end, you’re left not losing, but not winning either.
I’m not necessarily too hot on this dynamic, as we have several stable American investments that also pay generous dividends. But if you really want to invest in Russian stocks and be able to sleep, the RSX is the way to go.
Russian Stocks Post-Helsinki Summit: VanEck Vectors Russia Small-Cap ETF (RSXJ)
If buying a basket of major Russian stocks is a so-so investment, buying small-capitalization companies would only seem to ramp-up the risk factor. But actually, the VanEck Vectors Russia Small Cap ETF (NYSEARCA:RSXJ) offers a compelling and balanced exposure to the Russian markets. RSXJ has an expense ratio of 0.76%.
The RSXJ fund’s top holding is Aeroflot, the iconic — and I have to say, dead-cool — Russian airliner. With Russia boosting its international standing with high-profile events like the Olympics and the World Cup, Aeroflot might do well in the coming years. Also, the RSXJ features the Moskovskiy bank and the LSR Group, a Russian real-estate development firm.
You can’t easily invest in these companies directly if you’re an American buyer; therefore, the RSXJ gives you the most convenient channel. The problem, though, is that the ETF’s other companies aren’t so great, bringing down its YTD performance to -12%.
Like the RSX, I’m not the biggest fan of the RSXJ. But it does give you the opportunity to play Russian stocks to which we don’t have access. If you’re a true Russophile, the RSXJ might be up your alley.
Russian Stocks Post-Helsinki Summit: Direxion Daily Russia Bull 3x Shares (RUSL)
If you’re feeling particularly bullish on Russian stocks, you can choose the Direxion Daily Russia Bull 3x Shares (NYSEARCA:RUSL). Please keep in mind that this is a three-times leveraged fund, which makes the RUSL appropriate only for shorter-term trades. The issuing company recommends a single-day trade.
You might get away with holding the RUSL for a few days, perhaps even a few weeks if you’re riding a strong trend. But please also be aware that leveraged funds, if held for the longer-term, can “derail” from its target index. And yes, I’m speaking from personal experience from my younger (and more foolish) days.
The fund also has an expense ratio of 1.28%.
But if you just want to pull the Russian slot-machine handle, then RUSL is a straightforward option.
Russian Stocks Post-Helsinki Summit: Direxion Daily Russia Bear 3x Shares (RUSS)
Let me make myself very clear from the get-go. Absolutely do not buy the Direxion Daily Russia Bear 3x Shares (NYSEARCA:RUSS) at this juncture. Not only is it a bearish fund at a time when it’s wiser to play the upside, it’s a three-times leveraged fund with an expense ratio of 1.13%. You’re literally burning your money if you buy the RUSS now.
So why am I including it on my list of Russian stocks?
I just want you to know about its existence because it might represent a wildly speculative bet down the line. When President Trump publicly humiliated our intelligence community in front of Vladimir Putin, it was the rarest of mistakes: this is one where “Teflon Don” might not recover.
In either case, other presidential candidates for 2020 will rip into Trump for this behavior. They will want to restore American honor, and that means going after the Russians. If Trump loses his reelection bid — and that’s a real possibility now — RUSS is the number to call.
Russian Stocks Post-Helsinki Summit: iShares MSCI Russia ETF (ERUS)
If you’re looking for another solid, longer-term Russia-based investment, the iShares MSCI Russia ETF (NYSEARCA:ERUS) provides a viable alternative. Before you say that the ERUS and RSX are both the same, they actually have different performance metrics. The ERUS is up 3% YTD, whereas the RSX is up only 2%.
Small variance, yes, but what investor wouldn’t take the extra 1%?
Plus, over the longer-term picture, the difference between the two competing ETFs could end up producing vastly varying results.
That’s because the ERUS ETF has a different emphasis on its holdings. Compared to the RSX, the ERUS leans more heavily towards energy. Furthermore, its second-biggest sector holding is financials. That contrasts with the RSX, whose top two holdings are energy and basic materials, respectively.
Other than that, the same warnings apply to the ERUS as it does to the RSX. The ERUS is a relatively stable way to play Russian stocks; however, the fund’s poorly performing names have frequently weighed down the entire investment. The expense ratio for ERUS sits at 1.13%.
Russian Stocks Post-Helsinki Summit: Franklin FTSE Russia ETF (FLRU)
Rounding out the available Russia-based ETFs is the latest addition to the family, the Franklin FTSE Russia ETF (NYSEARCA:FLRU). The FLRU was just launched in early February of this year, so it’s hard to gauge how it will perform. Nevertheless, this fund provides a different look to Russian stocks that you don’t get from either the RSX or ERUS.
Among the three ETFs, the FLRU is the most levered towards the energy sector at 47% of its sector breakdown. In comparison, the ERUS features 45%, while the RSX comprises 40%. Moreover, the FLRU has exposure to both small-cap and micro-cap companies. The RSX doesn’t feature micro-caps, and the ERUS holds neither small-caps nor micro-caps.
So is the FLRU right for you? If you’re feeling bullish towards Russian energy companies, then this latest ETF will probably give you higher returns. And its expense ratio is just 0.19%. But if stability is your primary concern, both the RSX and the ERUS has much greater credibility.
Russian Stocks Post-Helsinki Summit: McDonald’s (MCD)
When McDonald’s (NYSE:MCD) first opened its doors in Moscow in 1990, this offered residents of the then-Soviet Union a rare glimpse into western capitalism. People waited in long queues, paying several days’ wages for a literal taste of America and its popular culture. Less than two years later, the Soviet Union dissolved.
How ironic, then, that Russia might represent a way for McDonald’s to get back on track. While Americans will always have a love affair with fast food, this sector is fiercely competitive. MCD stock itself is down about 8% so far in 2018.
While I don’t believe Russia and the eastern European market can alone save MCD, it’s still a key market. Not only that, the Russian division is handling geopolitical crises in creative ways. When sanctions killed the ruble’s value, Russian McDonald’s restaurants shifted to their homegrown potatoes.
With MCD down significantly, combined with prospects for improving U.S.-Russia relations, it’s worth a second look.
Russian Stocks Post-Helsinki Summit: PepsiCo (PEP)
You might be surprised to learn this but PepsiCo (NASDAQ:PEP) actually has a rich history in Russia. During a 1959 debate between then Vice President Richard Nixon and Soviet Premiere Nikita Khrushchev, the two political rivals shared a Pepsi in between verbal jousts.
Later, Donald Kendall, Nixon’s friend and Pepsi’s international operations chief, went to Russia and established a friendship with Khrushchev. That relationship eventually blossomed into an unprecedented move: in 1974, Pepsi became the first western brand to be made and distributed in the Soviet Union.
After the Soviet empire collapsed, PepsiCo leveraged its unique standing in Russia to effectively combat rival Coca-Cola (NYSE:KO). Coca-Cola was kicking PepsiCo’s hind quarters everywhere else, but Russia remained its stronghold.
As with McDonald’s, PEP faces a tough competitive environment. But to this day, management invests heavily in Russia. It’s not unreasonable, given their improving consumer market, to assume that PEP rises higher over the longer-term.
Also, PEP stock responded well following the Trump-Putin meeting. Coincidence? Perhaps not!
Russian Stocks Post-Helsinki Summit: Ethereum Classic Investment Trust (ETCG)
As a cryptocurrency-based fund, the Ethereum Classic Investment Trust (OTCMKTS:ETCG) is incredibly volatile and risky. That said, I genuinely believe that the blockchain and the crypto-ecosystem represents the future of investment markets and financial transactions. Finally, we have a technology that can de-lever the U.S. dollar’s hegemony. No wonder why the Russians are so interested in the blockchain!
Putin made headlines last year when he endorsed cryptocurrencies; specifically, bitcoin’s key rival ethereum. To clarify, the ethereum that we know today is actually a hardfork from the original ethereum token, which is now known as ethereum classic.
The greater issue is that Russia is lightyears ahead of us and other western countries in adopting this disruptive technology.
No matter how we feel about Russian geopolitics, one thing is clear: they’re willing to try new avenues while we’re stubbornly stuck with traditional platforms. For instance, last May, I featured Storiqa, a Russian blockchain project exploring a physical-goods market utilizing cryptocurrency transactions. Try that in the U.S., and the feds might knock down your front door.
Like I said earlier, cryptocurrency funds like ETCG can be outrageously volatile. However, the general sentiment in Russia and other parts of the world, particularly Asia, is very much bullish. If you have some gambling money lying around, ETCG may be a worthwhile bet. The expense ratio on ETCG is 3%.
As of this writing, Josh Enomoto is long bitcoin, ethereum, and ethereum classic.
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