James Grant Says Russian Oil Stocks Provide a Margin of Safety
CNBC’s Maria Bartiromo interviewed James Grant, founder of Grant’s Interest Rate Observer and author of Mr. Market Miscalculates: The Bubble Years and Beyondto get his view on speculation the Fed may begin tapering their asset purchases this month.
Grant did not have an opinion on whether the Fed would change its policy at its meeting next week. Instead he said investors should “look for margin of safety, look for something that’s universally reviled, cheap and promising on the basis of fundamentals.”
To that end Grant stated “the most loathed, and detested securities extant are the common equity of Russian oil companies.” Grant provided three examples: Lukoil, Rosneft, and Gazprom which trade at multiples of 3, 4, and 6 times earnings and yield 4-5%. Lukoil is the most westernized of the three as it reports in U. S. and English GAAP and trades in a liquid fashion in London, he added. Grant referred to Gazprom as “most like Vladimir Putin” and “designed as the world’s worst company according to Bloomberg” as it reports at length intermittently, but trades at less than three times earnings. Grant said “what if things go right” along with there being some insider buying. Grant added that the Russian oils trade at a tiny fraction to reserves when compared to both American oil producers, but also other emerging market oil companies.
Grant quipped “so much about successful investing is having people agree with you later.”
Bartiromo asked Grant if he believed tapering meant higher interest rates. Grant said much of this was already in the market. “For what its worth bonds might be going up because bonds are going up,” Grant observed. He added that bond moves have tended to go through generation-length cycles as rates went up from 1946 to 1981 and have fallen for the past 30, or so, years. Grant said he believed rates have turned and will continue rising.
The interview continued with Grant expressing his view on who should be the next Fed chairman, the role of the Fed, and why he’s bullish on gold.
Back in March 2012, Grant commented on the Fed’s market manipulations and “explosion” in the European Central Banks (ECB) balance sheet [link].