Returning to Russia for More Profits

Robert Hsu, January 09, 2008

We haven't talked much about the Russian economy. So today I want to take a look at Russia and what I'm expecting for the country this year. I also have a Russian company to add to our buy list, which we'll get to in just a moment.

I'm bullish on Russia, and I believe the Asian powerhouse will have an excellent 2008. There are several reasons why I think we'll see the country have a strong year. A robust economy, strong consumer demand and an increasingly clear political landscape will drive Russian stocks higher in the coming months.

Although the final numbers for 2007 aren't in yet, Russia's GDP was expected to grow a hefty 7.3% last year, the biggest growth rate since 2003. This year, GDP is expected to grow a robust 6.6%.

When it comes to the country's stock market, last year Russia's benchmark index, the RTS, climbed 19%. At first glance, this gain isn't very impressive when compared with other emerging markets. Brazil's benchmark jumped 43%, India's benchmark climbed 47% and China's benchmark gained a whopping 97% in 2007. However, the Russian economy has many positive things going for it and 2008 could be its break-out year.

Political uncertainty was squashed recently when Russian president Vladimir Putin decided to endorse his longtime protégé and first Deputy Prime Minister Dmitry Medvedev as his successor. And with a weak dollar and high oil prices, Russia's foreign reserve will continue to rise. In addition, the Russian economy has become more diversified in the past 5 years, expanding beyond its traditional strengths in oil and gas. Internal consumption is also booming because Russian consumers have more money to spend.

I believe the Russian economy is moving from export-driven growth to more domestic, demand-driven growth. As this switch takes place, investors should buy stocks that take advantage of Russia's domestic consumption. That's exactly what we're going to do this week with our new recommendation.

A New Buy

As we just talked about, wealth creation is on the rise in Russia. Disposable incomes in Russia are expected to increase at an average rate of 10% a year through 2011. This is especially good for the country's food industry. Food is the most basic and important resource of all, and as Russians' incomes grow, so will their grocery shopping lists. Russia's $145 billion food retailing industry could more than double in size over the next three years, giving us a big opportunity in a major Russian dairy producer.

My new recommendation is Russia's largest dairy and juice products maker. It's also ranked among the most successful mid-sized companies in the world. Founded back in 1992, it didn't go public on the NYSE until a decade later.

The company makes original dairy products, juices and baby food. In the first half of 2007, 75% of its revenues came from dairy products, 18% came from beverages and 7% came from baby food. The company's hold on the Russian food market is strong -- it controls a 34% share of the Russian packaged dairy product market, an 18% share of the Russian juice market and more than 60% market share in the country's dairy baby food segment.

The company's main market is Russia and its surrounding countries. WBD has 37 processing plants scattered throughout Russia, Ukraine, Georgia and Central Asia (such as Kyrgyzstan and Uzbekistan) as well as distribution networks in 26 cities in Russia and the Commonwealth of Independent States (CIS). Its 19,500 employees serve a total of 280 million customers.

Since 2002, the company has been acquiring successful companies in Russia and the CIS. It has closed a long list of successful deals. After purchasing these plants, the company makes substantial investments in the modernization of its new facilities. The company also reallocates its processing plants to ensure that its products are produced as close as possible to where they're sold.

The company continues to acquire companies in eastern and central Europe, the former Soviet nations and China. Recently it opened an office in China, and it may import raw materials like juice concentrate from there in order to reduce costs.

I like the company because it has established strong brands across its businesses. Its products also help people improve their well-being, which is becoming ever more important as more Russian consumers pursue healthier lifestyles.

Find out the name of this company and my advice on how to best invest in it by becoming a member of Asia Edge today!

Healthy Growth Ahead

The company has been growing by leaps and bounds in the past several years. Its sales revenue more than doubled from $825 million in 2002 to $1.76 billion in 2006, averaging 21% growth a year, while its earnings nearly tripled from $83 million to $234 million during the same period.

In mid-December, the company said its third-quarter profit more than doubled as consumers bought more milk, baby food and juices. Net income grew 105% to $39.8 million from $19.4 million a year earlier, beating the average estimate of $36.5 million. Sales increased 39% to $610.5 million, also above Wall Street's projection.

Despite a sharp rise in raw milk prices, its higher-margin, value-added products helped maintain its profitability. In fact, profit margin, one of my favorite indicators of a company's operating performance, improved to 40.4% in the first nine months of 2007. That's up from 34.4% in the same period last year.

The company is capitalizing successfully on rising demand for higher-priced foods and beverages as a ninth-straight year of economic growth boosts Russians' incomes. The company is introducing new products like the sour milk beverage Neo Beauty, whose sales the company expects to rise as much as 50% annually. The company also plans to increase sales in other former Soviet countries, like Ukraine, Belarus and Kazakhstan, to about 20% of total revenue in the next five years, up from the current level of 7%.

Its stock almost doubled in 2007, but I believe there's more upside potential yet to come. Even during the current poor market conditions, the company has managed to maintain its share price very well, demonstrating strong momentum.

Get in on this profitable opportunity today. Join Asia Edge today! There are more profits to come!

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