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Russia: Opportunity in Chaos
03/17/2014 10:00 am EST
Global expert Keith Fitz-Gerald is willing to take a contrarian stance by recommending two Russian stocks amidst the crisis in the Ukraine. The editor of Strike Force looks at stocks that he likens to the Google and Twitter of Russia.
Steve Halpern: We are here today with Keith Fitz-Gerald, chief investment strategist of Money Map Report and editor of the Strike Force Newsletter. How are you doing today, Keith?
Keith Fitz-Gerald: I’m doing great, it’s great to be back, and thank you for having me.
Steve Halpern: You’re well-known as both a global stock expert as well as a very independent thinker, often willing to take positions which are contrary to the consensus. Before we talk about some specific situations, could you expand a little on contrary investing in general, and perhaps explain the psychology involved when buying when others are fearful.
Keith Fitz-Gerald: I’d be happy to. Most people think about contrarian investing incorrectly. They assume that it’s simply going away from the herd or doing something differently.
In reality, if you look at how the all-time greats practice it, and I mean guys like the legendary Jim Rogers, or Mark Mobius, or Sir John Templeton, they hunted for value.
What they wanted was to find businesses with cash flows and opportunity that others didn’t yet see, so, really, their notion of contrarian investing, as I practice it, is to hunt for unrecognized opportunity in the middle of chaos that sends investors running the other way out of fear when, in fact, they should be wading in because that’s where the biggest returns come from.
Steve Halpern: Emotionally, that’s difficult to do. You’ll recognize that, correct?
Keith Fitz-Gerald: Oh, yes. Emotionally, it’s very, very trying, and this assumes, of course, that you have the balance of your portfolio appropriately allocated and properly protected, because you don’t want to take unnecessary risks and you never want to try and catch a falling knife.
But if you have an opportunity that is unloved, unrecognized, and yet, still has tremendous promise, it’s a great opportunity to wade into the market, and let me give you an example:
Sir John Templeton, in 1939, borrowed $10,000, and he bought shares in every single company on the New York stock exchange that was trading under, I think it was $1, at the time. He made money on 100 out of 104 companies that he purchased and quadrupled his money.
He understood that war—while unpleasant, and the world was going to be plunged into chaos for maybe even years—would ultimately produce solid rebound. I’m betting the same thing is happening in parts of the world today.
Steve Halpern: Now, a good example of your contrarian style is your willingness to look beyond the headlines and take a bullish stance on select Russian equities. In your latest newsletter, you called this an opportunity to capitalize on the chaos, could you expand on that?|pagebreak|
Keith Fitz-Gerald: You bet. Many people are absolutely upset, and rightfully so, about what Russian president Vladimir Putin is doing in the Ukraine. I would not be surprised if he has engineered this entire crisis on the grounds of legitimacy.
He believes the Ukraine belongs to Russia, and it should be a part of the Russian sphere, or orbit, if you use a political term.
I think, ultimately, that this is going to do very little to Russian equities, and that the promise of that market is too big to be ignored, so I’m very happy to wade in, like Sir John Templeton did on the eve of World War II, and take select positions where I can identify potential.
Steve Halpern: Let’s look at two specific ideas where you see some upside potential despite the scary headlines in Russia, and the first is Yandex (YNDX). Could you tell us about that company?
Keith Fitz-Gerald: Yandex is a very interesting opportunity to me. Really, for lack of a better term, it’s the Russian Google. It’s down 25%-30% year-to-date, yet the company has got average annual revenue growth approaching 50% over the last three years.
Net income is up over 60% over the same time period. The bottom line is growing. I think you cannot ignore something as compelling as that, especially in an era where everybody is getting more and more Internet-connected, I wouldn’t say savvy, but definitely connected. To me, you want something like a Google on that part of the world.
Steve Halpern: Now, you also see a contrarian opportunity in a company called Mail.ru Group (MLRYY). What’s the story behind this company?
Keith Fitz-Gerald: Well, it’s interesting because Mail.ru really is the operator of the Russian version of Twitter. Now, as much as I dislike Twitter here in the United States, I’m perfectly happy with Mail.ru because I think it’s a great bargain.
I think that people are interconnected using their devices there to a much greater degree than we see here. They rely on them differently, and that’s something I simply want to get ahold of. The business proposition behind interconnectivity does not change no matter what Putin does in the Ukraine.
Steve Halpern: With both of these companies, it appears your recognizing a very real difference between investing in Russia, in general, versus investing in the specific fundamentals of these companies.
Keith Fitz-Gerald: Yes, that’s absolutely correct. I think the fundamentals of the company are tremendously mispriced by virtue of the headlines, which is why I’m willing to ignore them and look beyond.
Steve Halpern: Well, we really appreciate you taking the time today. Thank you for your insights.
Keith Fitz-Gerald: It’s an honor. Thank you.
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