If I had to name one stock recommendation that I had regretted not giving my Global Bull Market Alert subscribers over the past six months, it would be Russian oil play Tatneft (TNT). But with the stock having traded up to $126, followed by its recent collapse to $82 — a breathtaking 35% in ten short days — it seems that Mr. Market’s latest mood swing has given us a second bite at the apple.
I have been following Tatneft since it first went public in 1997 at the height of the (first) Russian stock boom. Although it is less well known than its higher-profile rival Lukoil, Tatneft is no also-ran, boasting over 6 billion barrels in proven reserves and accounting for 8% of Russia’s oil production. After going public at $40 per share, Tatneft later traded as low as $1.50 after the Russian stock market crash of 1998. Even as late as last year, it traded at $20 in the midst of the scandal surrounding the dismantling of Russian oil giant Yukos.
Here’s why I think the recent price collapse is a terrific buying opportunity for Tatneft (TNT) — and why I think it could easily double over the next 12 months:
First, the past year’s runup in the stock notwithstanding, Tatneft is still incredibly cheap. With Tatneft on track to earn close to $2 billion this year, it is currently trading on a P/E of about 4 based on its current market capitalization of $8.1 billion. That means that Tatneft could double from here and still trade at a 50% discount to British oil giant BP.
Second, Tatneft’s profitability is accelerating much faster than the Western oil majors. Just last week, Tatneft announced earnings of $435 million last quarter — a breathtaking 130% jump in profitability on the back of a 39% increase in sales. A caveat: these numbers are calculated under Russian accounting standards — although as a NYSE-listed company, Tatneft will have to report under U.S. accounting standards as well. But no matter how you slice and dice it, these are blowout numbers and indicate a strong trend.
Finally, Tatneft’s share price benefits from two strong tailwinds
— the price of oil and what has been a red hot Russian stock market. With global supplies of oil dwindling, and the current correction notwithstanding, it’s unlikely that we’ll see oil back near $40 soon. And Tatneft is the only fully listed Russian oil play on the NYSE in what has been the hottest market on the planet — up over 190% over the last 12 months — and one I expect will recover with a vengeance once the current turmoil settles. So for anyone who wants to invest in a Russian oil play with U.S. style accounts and avoid dicey pick sheet trades, Tatneft is the only choice.
So buy Tatneft (TNT) at market today, placing your stop at $54. But get set for a volatile ride. Tatneft moves around 4%-5 % a day even under normal conditions. And in today’s marketplace, buying anything is like catching a falling knife. The only "floor" on Tatneft’s price is its incredible value. There are no options on this one, though holding the stock alone may feel like it sometimes.
PORTFOLIO UPDATE
We were stopped out of most of our positions last week — ABB, GOL, TLK, DB, CTSH — mostly at a solid profit in both the stocks and the options. Sticking with sell stops is the most difficult, yet most necessary, part of running a trading portfolio. This is especially the case when the sharp falls are due to general market nervousness and not changes in fundamentals. For my thoughts on last week’s market action, see my article on Mr. Market’s Mood Swings on The Global Guru Website.
Also, a special thanks to my subscribers who attended my two presentations at the Las Vegas Money Show last week. It was a pleasure to meet many of you in person, and I am grateful for the strong attendance at both sessions. I look forward to meeting more of you at the upcoming Money Show in Washington, D.C. on July 20th and 21st. To attend as my guest with complimentary registration, please go to http://www.dcmoneyshow.com/ms/dcms06/?scode=006245
