ETF Teardown: Russia's Best Stocks

Noted for their simplicity, among other advantages over mutual funds, exchange-traded funds have become a popular investing tool. ETFs hold a collection of stocks that share certain elements in common. If investors want to capitalize on the booming economy in Russia, for example, they can turn to Market Vectors Russia (NYSE: RSX  ) .

But since these ETFs invest in a number of stocks, their broad diversity also limits your upside. For an investor who's really hip to telecommunications in the region, but cold on the future prospects of Russian steel and utility stocks, this ETF wouldn't fit the bill.

Fear not, Fool -- in this edition of "ETF Teardown," we'll use some nifty tools to drill into the best of what Russia has to offer. To help, we'll use Motley Fool CAPS, our tool for screening and ranking stocks and stock pickers.

The power of tags
To help investors quickly locate great stocks, any of the 4,300 rated stocks profiled in CAPS can be "tagged" with a keyword. These keywords group companies with others sharing a given quality.

Selecting the "Russia" tag in CAPS presents a list of seven Russian investments that trade on American exchanges. This particular collection of investments has done amazingly well in the past year, up 105% versus the S&P gain of only 13%.

To gauge which companies the CAPS community considers the best opportunities in Russia today, we'll sort this list by each firm's CAPS star rank, denoted by one to five stars, with five being the best. We'll then see who on Wall Street (and Main Street) is bullish or bearish on which company, and why.

Getting down to the nitty-gritty
Here are the seven Russian stocks our screen pulled up today.

Company

CAPS Rank

Mobile TeleSystems (NYSE: MBT  )

*****

Vimpel Communications (NYSE: VIP  )

*****

Mechel OAO (NYSE: MTL  )

*****

Lukoil

****

Moscow CableComm

***

Wimm Bill Dann (NYSE: WBD  )

**

Rostelecom OAO (NYSE: ROS  )

**

In the CAPS community's favorite Russian investments, wireless communications and steel production really stand out. Mobile Telesystems and Vimpel Communications are Russia's top two wireless service providers. While Russia's domestic market is saturated, both companies still rack up significant subscriber growth in other operating countries such as Ukraine and Uzbekistan.

These non-core markets help boost the companies' profits as well. For Mobile Telesystems, Ukraine only contributed 23% of its revenues in 2006, but accounted for 25% of its net income. For this reason, the country also garnered the largest portion of capital expense in expanding the company's network. Vimpel Communications has similarly increased its focus on other, still-untapped Eastern European markets. These expansion efforts have paid off, boosting cash flow at both companies, leaving investors bullish about future growth ahead. More than 96% of CAPS investors following these stocks believe they will outperform the S&P going forward.

Russian mining and steel producer Mechel is another stock garnering five stars from CAPS. Like global producer Arcelor Mittal (NYSE: MT  ) , investors cite continued demand for raw materials and steel, and an attractive 8% dividend yield, as reasons to be bullish on Mechel. Despite concerns about energy costs, 109 out of 111 CAPS investors think a low P/E will help Mechel outperform the S&P in the future.

You can lead a horse to water...
Plucking individual stocks from an emerging market such as Russia is always risky. Investors should always perform their own due diligence on companies, rather than taking a recommendation at face value. After all, even the best stock pickers can be horribly wrong on a stock.

Do you agree that wireless communications are still the best opportunity in Russian business? Or are steel and utility companies a better play? Give your own opinion in Motley Fool CAPS.

Motley Fool Global Gains can help you find some of the greatest international investment opportunities beyond our borders. See the top foreign stocks Bill Mann and his team have discovered when you try the service free for 30 days.

Fool contributor Dave Mock loves doing the teardown part -- it's the put-back-together part he hates. He owns no shares of companies mentioned here. Dave is the author of The Qualcomm Equation. The Fool has a disclosure policy.


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Related Tickers

9/30/2014 4:06 PM
MBT $14.94 Down -0.12 -0.80%
Mobile TeleSystems… CAPS Rating: ***
VIP $7.22 Up +0.07 +0.98%
Vimpel-Communicati… CAPS Rating: ****
MT $13.69 Down -0.07 -0.51%
ArcelorMittal CAPS Rating: ****
MTL $1.13 Up +0.38 +50.09%
Mechel OAO (ADR) CAPS Rating: ****
ROS $27.35 Down +0.00 +0.00%
Rostelekom OAO (AD… CAPS Rating: **
WBD.DL $0.00 Down +0.00 +0.00%
Wimm-Bill-Dann Foo… CAPS Rating: **

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