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The Russian Google and Puerto Rican Bonds

Oklahoman Published: March 23, 2014

Dear Mr. Berko: I was able to purchase the 8.7 percent Puerto Rican general obligation bonds at par, and they quickly rose to a premium. That’s a great interest rate, and your thoughts on the long-term safety of these bonds will determine whether I purchase more for my municipal bond portfolio. I also want to speculate with a Russian Internet stock. Most Russian stocks are down since the Ukrainian crisis, and I’d like to take a shot with two Russian issues that have real revenues and earnings. I can afford the risks.

HO, Joliet, Ill.

Dear HO: I don’t know much about Russian stocks, but I know enough to tell you that many successful Russian companies end up as subsidiaries of the Russian Politburo, or in the portfolios of Vladimir Putin and comrades. Yandex (YNDX-$32.06), often called the Google of Russia, has more than 60 percent of the Russian search engine market, and that number is growing bystro. It does most of the things Google does, but it does them in Russian. Before the Ukrainian brouhaha, YNDX traded in the mid-$40s, and I really like this Russian company.

It’s home-ported in the Netherlands, far away from Moscow and the corruptive influence of most Russian companies, which genetically suffer from questionable balance sheets and comic income statements.

Meanwhile, YNDX’s revenue growth has been phenomenal — leaping from $9 billion in 2009 to an estimated $51 billion this year and maybe $62 billion in 2015. And there’s no Mickey Mousing with the income statement; YNDX should earn $1.30 this year and perhaps will earn $1.81 in 2015, and it has 360 million shares outstanding, with just $500 million in long-term debt.

Meanwhile, the Russian influence in Ukraine is little different from the blatant U.S. hegemony in Latin America and the Middle East during the John Foster Dulles years. So the 35 percent drop in YNDX is probably temporary. And Credit Suisse, HSBC and Bank of America are recommending the stock with a short-term target of $45.

I don’t know how you were able to purchase those new Puerto Rican bonds, but you made a good score — temporarily. I rang an acquaintance at Morgan Stanley (one of the underwriters) a week before the initial public offering.

He said that the issue was oversubscribed, that the interest rate on the long bonds was originally 9.4 percent and that the underwriting group was raising the initial subscription amount from $3 billion to $3.5 billion because the demand was so strong.

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