By Justin Spittler, editor, Casey Daily Dispatch
“Russian Hackers Will Try to Impact More Elections”…
“Rumors of War: Russia massing troops on North Korea border”…
“U.S.-Russia relations at another low after Syria attacks”…
Lately, Russia’s been getting nothing but bad press. So it shouldn’t surprise you that most investors want nothing to do with Russian stocks.
But I’m not like most investors. I’m a contrarian.
Like Doug Casey, I like to buy stocks other investors despise. This allows me to get incredible deals…and often bag huge returns.
So today, I’m going to tell you why you should consider Russian stocks, which are easily some of the most hated stocks on the planet.
You heard that right. I’m about to tell you why Russian stocks could rip higher in the months ahead.
It sounds crazy. But here’s the thing…
• The news isn’t as important as you think…
You see, the market often “prices in” news before you hear about it.
Other times, investors simply shrug off news.
That’s been the case with Russian stocks lately. Just look at the chart below.
It shows the performance of the VanEck Vectors Russia ETF (RSX), which invests in 30 Russian companies.
It’s up 24% since June despite a steady stream of bad news.
In a second, I’ll show you what’s fueling this rally…I’ll tell you why Russian stocks should keep rising…and I’ll show you an easy way to profit from this coming rally.
But you should first understand why these hated stocks even have my attention…
• Russian stocks are dirt-cheap…
We can see this by looking at the cyclically adjusted price-to-earnings (CAPE) ratio. The CAPE ratio is the cousin to the popular price-to-earnings (P/E) ratio. The only difference is that it uses 10 years’ worth of earnings instead of just the previous year’s.
It’s one of the best ways to tell if stocks are cheap or expensive.
Right now, the CAPE ratio for Russian stocks is hovering around 6. For perspective, the S&P 500 is currently trading at a CAPE ratio of 31.
This means Russian stocks are 80% cheaper than U.S. stocks.
• Of course, Russian stocks should be cheaper than U.S stocks…
They’re much riskier. And investors pay a premium to own safe stocks.
But you have to ask yourself, “How safe are U.S. stocks really?”
After all, U.S. stocks have been rallying for nearly straight nine years. At this point, they’ve only been more expensive one other time. And that was during the dot-com bubble.
In short, investors aren’t getting what they’re paying for with U.S. stocks.
Plus, Russian stocks aren’t just cheap relative to U.S. stocks. They’re also cheap relative to history. In fact, they’re trading at a 5% discount to their own historical valuation.
• Now, that might not sound like a big deal…
But almost every stock market in the world is trading at a steep historical premium right now. Just look at the table below.
You can see that Russian stocks aren’t just a lot cheaper than U.S. stocks. They’re also cheaper than other emerging market stocks.
|Current Price-to-Book (P/B)||10-Year Avg. P/B||Premium|
In short, Russia’s about the only place on earth where stocks are cheap.
• Of course, regular readers know that it’s not enough to just be cheap…
For me to be interested, there also has to be a reason why those stocks will rise in value.
And we have that with Russian stocks. Before I tell you what that is, you must understand something about Russia.
Its economy revolves around oil. In fact, crude oil makes up 33% of its exports. Refined oil products account for another 16%.
Because of this, Russian stocks closely track oil.
You can see what I mean in the chart below. The green line you’re looking at is RSX. The blue line is the price of oil. The two lines practically move in lockstep.
And that’s where today’s opportunity lies…
• Oil’s up 27% since June…
And that’s triggered a huge move in Russian stocks. It’s why RSX is up 23% over the same period.
Now, that’s a big move. But don’t worry.
Oil’s likely headed much higher. And here’s why…
Demand for oil is picking up. Earlier this month, the International Energy Association (IEA) raised its global oil demand by 100,000 barrels per day (bpd). It did this due to “stronger than expected” demand in the U.S. and Europe.
It was the third straight month that it raised its estimate.
Global oil inventories are declining. According to the IEA, global oil stocks are returning to normal levels after being extremely bloated for months. It even recently said that the oil inventories of the Organization for Economic Cooperation and Development (OECD) could fall below their five-year average “very soon.”
Global oil production is coming down. The Organization of the Petroleum Exporting Countries (OPEC), a cartel of 12 major oil-producing countries, has cut its production by 1.8 million bpd since the start of the year. Last month was also the first time in four months that global production fell.
These are all ingredients for higher oil prices.
• Now, it’s hard to say how much higher oil will climb…
But history tells us it could soar.
You see, the price of oil plunged 78% between July 2008 and December 2008.
That's an enormous decline. According to DailyWealth Trader editor Ben Morris, the price of oil has only fallen 50% or more five times in the last 30 years.
Each time this happened, it set the stage for a monster oil rally. In fact, oil’s average gain the last four times this happened was 327%. This means the price of oil could soar another 127% before this rally is said and done.
• If this happens, Russian stocks could shoot through the stratosphere…
So, consider buying Russian stocks if you’re looking for a cheap way to profit from higher oil prices.
You can easily do this with an ETF like RSX.
Just understand that Russian stocks are highly speculative. So don’t bet more money than you can afford to lose. Use stop losses. And take profits when you get them.
Investors who do this will set themselves up for big profits without exposing themselves to big losses.
New Orleans, Louisiana
October 13, 2017
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