An absurdly cheap stock idea - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 9 May 2014
An absurdly cheap stock idea A  A  A

Baltimore, Maryland Not much to report from the markets. The Dow up a bit. The Nasdaq down a bit. Gold flat. Twitter got slammed's lost about half its value this year.

Your editor believes he suggested that you sell the high-flying techs. If he didn't, he should have. But he does not usually make investment recommendations. He does not do investment analysis. He does not often invest.

Instead, he waits. And waits. And waits...until a bargain screams so loudly in his ear it threatens his hearing.

And yet, even at that moment, he hesitates. When something is so cheap that it appears to be a once-in-a-lifetime opportunity his feet grow cold. What's wrong with it, he wonders? If it's so cheap, there must be a reason. What do all those people who don't want it know that he doesn't? Blood in the streets doesn't bother him; but what if the next blood trickling down the gutter will be his own!

And then, he is delayed and disturbed by the philosophic implications. If there had been a dollar bill lying on the sidewalk in front of him, surely someone would have picked it up, no? And if someone had picked it up... it couldn't still be there, could it? Well then, it isn't there, no matter what our eyes tell us.

And yet, what do skittish, panic-prone markets do, except whack out from time to time? And what good are they if cold-blooded, steel-nerved investors can't take advantage of them? And how would they ever get back to normal if all investors took temporary madness as proof of permanent impairment?

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Assuming the market anomaly is still with us by the time this cranial indigestion has passed, we are ready to act. And you, dear reader, are the beneficiary. For today, we give you a recommendation...

Not a well-researched, carefully-considered and thoughtfully rendered recommendation. No, 'tis is merely a seat-of-the-pants hunch... a frivolous and self-serving Picasso doing a sketch on the back of his luncheon bill.

It is Mothers' Day on Sunday. Perhaps Mr. Market is feeling flush with filial fondness for dear ol' mom. Here he comes - his hands forward...and a bright red bow wrapped around his precious gift.

What is it? Gazprom!

We are talking about Russia...and specifically, about a gift that keeps on giving. The company is said to control 15% of the world's known gas reserves. Gazprom is going to be passing along its gas for a long, long time.

It has a return on equity of about 13%...and a net profit margin of nearly 30%. By comparison, Exxon Mobil has an ROE of 18% and a net profit margin only half as good.

In terms of price to earnings, you can buy Exxon at 14 or Gazprom at 2.5. A dollar's worth of earnings from the US giant will cost you 14 bucks, in other words. Fourteen dollars' worth of Gazprom, on the other hand, would be worth nearly $6 of next years' earnings.

Does this mean you should expect the price of Gazprom to go up? Not at all.

For all we know, the Russian army stands massed on the border of Ukraine and every valve capable of delivering Russian gas to Europe has a pair of hands on it, determined to shut it off. Another fact recorded in the book we can't seem to find, is that next year an inventor will discover a marvelous way to power the world on water - making gas obsolete. And the year after, a report from the FDA will tell us that Russian gas causes people to gain weight - another devastating blow to Gazprom.

All we know is that some things are expensive and other things are cheap; Gazprom looks more down than up. And we spend our whole investment lives looking for assets that are absurdly cheap; when we come face to face with one, we don't want to duck.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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