Shares of Russian steelmaker-cum-coalminer Mechel PAO (NYSE:MTL) jumped more than 20% in early Monday trading, retaining a 20.2% gain as of 11 a.m. EST.
The question is, why? It's been nearly two weeks since Mechel reported its third-quarter earnings, and it seems too late for investors to be reacting to that news. In any case, Mechel's earnings last month were nothing to write home to Mother Russia about. The company's revenue grew a bare 5% year over year in Q3 -- much less than the 39% growth analysts had been predicting -- and Mechel reported a $43 million loss for the quarter. These hardly seem good reasons for the stock to be gaining 20%.
Rather, Mechel stock seems to be reacting positively to news that President-elect Donald Trump may nominate outgoing ExxonMobil (NYSE:XOM) CEO Rex Tillerson to become his new secretary of state. Exxon has done business in Russia for decades, and Tillerson is purportedly a famous friend of Russia's president, Vladimir Putin.
Investors seem to be latching onto this friendship as a reason to bid up shares of Russian companies such as Mechel, which may benefit from warmer relations between Russia and the U.S.
I think that's a mistake. For one thing, while ExxonMobil's CEO may become our next secretary of state, he also may not -- President-elect Trump still hasn't made an official announcement of his nomination, and of course the Senate has not confirmed him.
What's more, even if Exxon's CEO does become SecState, and even if he is a friend to Putin, that may not necessarily work to Mechel's benefit -- because Putin himself has targeted Mechel for punishment in the past! (In 2008, Putin famously blasted Mechel and its management for alleged price gouging on the domestic market).
With friends like these, Mechel may not need enemies.