How to trade junk stocks. Junk bond. Features of trading and investing

In international financial parlance, “junk” or “junk” bonds are high-yield bonds with a high risk of default. They may be government bonds with questionable solvency, as well as bonds of companies with a poor financial reputation or on the verge of bankruptcy.

A novice investor will find it strange why such a high interest rate is paid for “junk” securities. The yield on “junk” securities is 150-300% per annum (the yield on bonds of reliable issuers is 6-9% per annum). But there is nothing surprising here. High yields on securities are compensation for the additional risk that investors take on when purchasing high-risk bonds.

There are many investors who buy “junk” and count on the fact that a bankrupt company will be bought by a reliable company and will pay off the loan, as well as pay the promised high interest rates. However, such investors should be aware that deteriorating market conditions may lead to the issuing company's inability to service its debts and to its default. The history of the emergence of “junk” bonds is very interesting. The fact is that for many institutional investors (banks, pension funds, insurance companies), the possibility of investing in corporate debt obligations was legally limited to investment-grade bonds. Bonds of issuers with low credit quality - rated by BB Standard & Poor's and Ba Moody's - were not in demand until the early 80s. It is because of their lack of demand that they received the name “garbage”. In the United States, until the end of the 70s, all new bond issues intended for public offering had an investment grade rating. The only publicly traded “junk” bonds were the obligations of those issuers that received a downgrade due to a deterioration in their financial situation and lost their investment quality (they are also called fallen angels).

Revolution in the debt market
The revolution in the debt market was carried out by Michael Milken, who later received the nickname “king of junk bonds.” He is considered the founding father of the junk bond market.

Studying statistics on the corporate obligations market, Milken came to the following conclusions. First, debt securities with low credit ratings perform better over the long term than bonds with higher ratings, despite the increased risk of default. Secondly, corporate bond yields are cyclical: they perform best when the market is gloomy, and worst when the market is already “overheated”, and investor confidence is unlimited.

From this, Milken established that junk bonds are not really junk and their returns depend on the nature of market expectations. As a result of these findings and the subsequent practical work of Milkin and his followers on the US stock exchange, by 1983 more than a third of all outstanding corporate bonds had a non-investment grade rating. The reasons for such a rapid increase in the issuance of “junk” debt obligations are simple. First, these securities were an extremely attractive vehicle for corporate borrowers—publicly traded bonds typically carry lower interest rates than those sold in private placements and impose fewer restrictions on issuers' actions. Secondly, these securities are much more interesting for investors.

Research shows that lower-rated bonds earned investors higher risk-adjusted returns. The risk premium (addition to interest rates on risk-free obligations) of bonds with a low rating exceeded the level justified by the probability of default, i.e. real losses on the obligations of companies that declared insolvency were more than offset by higher interest payments from other companies.

Therefore, investors who purchased a diversified portfolio of high-yield bonds performed better than those who purchased a portfolio of investment-grade debt. And this is even taking into account losses from those securities on which the issuer defaulted.

Can't do without analysis
High-yield bonds are considered a tool for the most aggressive investors who are not only willing to take risks, but also prepared to suffer serious losses in the event of default.

Working with “junk” bonds requires complex analysis, including studying the current economic situation, forecasting the dynamics of interest rates, identifying promising industries and companies, assessing the financial position of a particular issuer, and calculating the potential yield of bonds. An unprepared investor will not cope with such a task in 99 cases out of 100.

In addition, when building a portfolio of “junk” liabilities, it is necessary to pay special attention to diversification. However, not every investor will have the funds available to him to create a wide portfolio of these debt instruments. In this situation, the most optimal solution seems to be purchasing shares of junk bond funds, the initial investment in which ranges from $1 to $5 thousand.

When choosing a “junk” mutual fund, you should take into account the level of expenses (it should not exceed the average for this category - 1.3% at the moment) and the period of tenure of the manager (preferably more than 5 years). For the junk bond fund category, the most commonly used are the Lipper High-Yield Bond Index and the Lehman High-Yield Index.

If we talk about issuers of “junk” bonds, we will highlight the following groups:
– rising stars (“rising stars” are young, dynamically developing companies that do not have a long operating history, asset size or financial stability necessary to obtain an investment rating);
– fallen angels (“fallen angels” are companies that once had an investment rating, but lost it due to financial difficulties);
– high-debt companies (companies with high debt);
– capital-intensive companies (capital-intensive companies are forced to enter the junk bond market when they cannot cover their need for capital with their own funds or bank loans).

It should also be remembered that the choice of “junk” bonds must be approached very selectively and focus on the highest quality ones, with a BB rating. Don't forget about the risks that are an integral part of junk bonds. These include:
– interest rate risk (in an environment of rising interest rates, new bonds will be issued with a higher coupon, leading to a decrease in the prices of bonds already in circulation and making them less attractive);
– default risk (means the borrower’s inability to service and repay its debt obligations);
– risk of rating downgrade (deterioration in the credit quality of bonds in the eyes of rating agencies causes investors to doubt the solvency of the issuer, which leads to a decrease in the market price of its debt securities);
– risk of inflation;
– call risk (the probability that the issuer will exercise its right to call bonds before maturity).

Time to buy
The well-being of the economy is an important condition for the success of investments in “junk” bonds.

Today, most U.S. companies with non-investment grade ratings carry heavy debt burdens, which, if the economy recovers sustainably, will boost sales and make it easier for borrowers to service their debts.
In addition, in the initial phase of economic recovery, interest rates rise. This reduces the cost of safer debt instruments (such as government bonds) and increases the attractiveness of junk bonds.

As economic growth recovers, the risk of default decreases, and while Treasury rates increase under these conditions, they decrease for high-yield bonds. After all, the risk premium that investors demand as compensation for the likelihood of non-payment is reduced.

Scandals surrounding fraud with corporate reporting of large companies in 2001, negative forecasts regarding the state of the American economy led to an increase in the yield of “junk” bonds. Due to the increased perception of risk, corporate borrowers had to offer investors higher interest rates. However, next year, analysts’ forecasts regarding further growth in income from investments in “junk” bonds did not come true. This was due to losses associated with a series of bankruptcies, as well as downgrades of credit ratings of telecommunications and energy companies. The deterioration of the financial condition of issuers in these two sectors led to stagnation of the entire market of corporate obligations.

Junk bonds bounced back in 2003. High quality debt securities, i.e. having an investment rating, have increased in price, becoming the object of close attention of investors. Naturally, this reduced their attractiveness, because they were no longer cheap. It's time to look at lower quality corporate bonds.

In 2004, the demand for “junk” bonds was no longer called “crazy.” Companies sought to complete deals and attract investors as quickly as possible, placing shares in a matter of days. Since January 1, approximately $42 billion of high-yield bonds have been issued, that is, an annualized increase of 75%.

But here everything is different. Sometimes they also try to classify bonds of Russian companies as “junk”. However, this is not always true. Despite the fact that formally Russian corporate bonds fall under the definition of “junk” (their rating cannot exceed B - the sovereign rating of Russia), they are hardly such.

Firstly, they cannot be classified as highly profitable. If we bring the ruble yield of Russian corporate bonds (amounting to 18-22%) to the foreign currency yield, it turns out that the latter will be quite low.

Secondly, the risk assessment of many Russian bonds is clearly overestimated by international agencies. Their methods are structured in such a way that in our conditions they focus not so much on the borrower’s business as on country risks. The country's ratings rose, and the ratings of Russian companies followed suit, although nothing radically changed in them.

Many market participants cite a tax on the issue of bonds, which puts corporate bonds at a disadvantage in relation to bills and government bonds, on which the issue tax is not levied, among the reasons hindering the development of “junk” bonds. Tax deductions that make issuing bonds more expensive have a negative impact on the ability of enterprises to raise borrowed funds. Other market participants advocate the introduction of different levels of taxation (progressive scale) depending on the circulation period of the issued bonds.

A tax cut will allow issuers to offer higher returns to investors, which could cause an outflow of money from the government debt market and complicate the conditions for further government borrowing. The advance tax payment procedure also raises complaints, meaning that the issuer will have to pay it before raising funds on the market. In addition, if the placement fails (in case of refusal of registration or due to incomplete placement), tax payments are not refunded.

The complicated state registration procedure also raises complaints. It lasts for months, and during this time, as experience shows, the situation can change greatly.

The ban on trading bonds before the end of the placement period seems completely incomprehensible, depriving underwriters of the opportunity to maintain quotes on the secondary market. Where will liquidity come from if an investor who bought a bond from the issuer cannot sell it until the placement of the entire issue is completed?

From profit to loss - one step The current volumes of the Russian junk bond market are very modest. However, the growth in the number of investors who are consciously willing to take risks for the sake of higher incomes, noted in the last 1-2 years, will increase the market volume. This will also help medium-sized businesses, since they are the ones that are developing and, therefore, in dire need of investment, and are the issuer of the majority of “junk” bond issues.

Investors are already not embarrassed by the appearance of bonds with high credit risks on the stock market. In the first four months of 2004, 8 times more high-risk bonds were placed on the Russian stock market than during the same period last year, and their share in the total volume of newly placed securities doubled - to 15%. According to experts, this proposal is direct evidence that the stock market is becoming a tool for attracting money into a growing economy.

The July banking “crisis of confidence” was a logical and inevitable consequence of financial stabilization (low inflation, stable exchange rates, low yields on the bond market). But it is precisely the problems in the banking sector (revocation of licenses from a number of financial institutions) that will lead to an even greater increase in “junk” bonds on the market. True, analysts are skeptical about the possibility of making money on them, but losing everything is quite easy. After all, when it comes to “junk” bonds, there is only one step from profit to loss.

Roman Zubarev

Junk stocks are securities that have low market value and current liquidity. They simultaneously have a high level of risk of loss of invested funds and the possibility of obtaining profits that significantly exceed the average indicators of blue chips.

Junk stocks (English: penny stock) are shares, bonds and other securities whose issuers have low capitalization, which determines their low liquidity and exchange value. In addition to the high risk of losing investments, such assets have potentially high profits in the event of a sharp change in exchange rate and are considered the opposite of first-tier securities - securities of large companies with long-term growth in value and level of dividends.

The term “penny” is not entirely correct for classifying a stock as a junk stock. In different countries and the rules of stock trading, the lower threshold of value varies significantly: American traders consider $5 to be the limit, European traders consider it to be €1. There is an opinion that this class includes only securities that are not included in the exchange listing. Two facts create additional confusion:

shares of large companies with sufficiently high liquidity in value may temporarily fall to the penny stock level (as, for example, the situation with Nike);
Securities of small-cap companies are traditionally priced above five dollars.

Despite the different approaches to valuation, several common characteristics of junk securities can be identified:

Features of trading and investing

Off-exchange placement makes it much more difficult for an investor to analyze the current situation and forecast its development in the future. The company does not need to undergo an independent audit and provide extensive financial statements; its quotes may not even be listed in general flow tables. As a primary analysis, all potential waste investment objects are divided into the following groups:

rising stars(“rising star”) - start-up companies that do not have a long financial and operating history, with sufficient capitalization to receive a high credit rating from S&P500 or Moody's. Such securities are classified as junk by default, regardless of current value;
fallen angels(“fallen angel”) - companies whose rating has decreased due to financial difficulties or management miscalculations, but have a high probability of restoring stable operations;
high-debt companies(highly indebted) - in the process of bankruptcy or acquisition, considered the riskiest type of junk stock;
capital- intensive companies(additional capitalization) - stable companies that need additional investments that cannot be covered with their own funds or bank lending. Such shares quickly increase in price and move out of the “ penny».

Securities of any of the listed categories will have low exchange activity with a high probability of manipulation, so traditional technical and graphical analysis in this case does not give acceptable results, so fundamental analysis comes to the fore (company and industry news, financial statements, macroeconomic indicators, insider data ). Main stages:

Particular attention should be paid to cheap securities, the dynamics of quotes of which for at least six months have a strong or moderate coincidence (correlation) with leading stock indices such as NASDAQ, Dow Jones and S&P 500. Junk shares of Russian companies should react to changes in the PTC and MICEX index ;
Changes in the first echelon (“blue chips”) always “pull” the second echelon along with them, especially if they operate in the same sector of the economy;
Potentially profitable options should outperform futures and options, especially for companies in the manufacturing and energy sectors. This trend is clearly visible in junk shares of foreign companies, and especially on the American NYSE;
When the top point of the rise or fall is reached, there is a rush of buying/selling, after which a sharp market reversal occurs. Smooth changes are not typical for cheap securities, so the investor needs to fix current profits or losses as quickly as possible. In technical analysis, such a situation is called a “one-day reversal”;
The investment portfolio should be as diversified as possible, and only in this case will it bring greater profits than long-term investments in liquid stocks. The recommended level of investment in one junk stock or bond is no more than 5% of total capital. The best option would be to attract co-investors, as in the case of Russian mutual investment funds (UIFs).

Manipulation of junk stocks

The most popular scheme is “pump and dump” - creating a situation of artificial growth of the quote with its subsequent sharp decline. Low-liquid penny stocks are usually subject to standard manipulations. The buyer of a large volume of such shares leaks information to the market under the guise of insider knowledge and waits until a non-professional begins to buy him back. For this the following can be used:

unreliable financial and insider data;
false analytics and press reports;
sending E-mail spam;
using the technique of “own operations”, when part of the controlling stake of the founders is thrown onto the market to maintain the rush of purchases (usually through third parties).

Junk stocks, an example of speculative price manipulation:

As a result, after rapid growth, the exchange rate begins to decline sharply and participants in the scheme receive significant profits from pre-opened sell positions. In the future, such fluctuations may be repeated several times depending on the capabilities of the organizers or the reaction of regulatory authorities.

Lately there has been just some kind of wave of exposure of all sorts of left-wing grails and methods on Smartlab. I propose to consider one of them - I won’t say that I gained much insight into it, but I “smoked” a little :)

Many have heard the term “junk stocks” - they are on every stock exchange in the world, but not everyone knows what they are.
So let's figure it out: what kind of animal is this and what they are eaten with :))

So, according to Wikipedia, “Garbage is one of the categories of waste from human activity.” But how does it happen that shares, the shares of some sometimes very successful companies in the past, turn into elementary “garbage”?

And how can this “garbage” be dangerous for a trader and investor? We will talk about the American market, but with some amendments, they are also valid for other stock markets.

Let's start with the characteristics by which most experts classify these shares as "junk".

So, first characteristic
– they are very cheap (most of them are under 5 bucks).

Second characteristic - these shares are trading with too low volume - less than 300,000 per day. For the MICEX this is too much, but for the Americans it is too little.

So what is the danger of the sex trade? penny stacks? After all, at first glance, it may seem that cheap shares are attractive because they can greatly increase in price... Well, let's figure it out.

Maybe someone has read Bill Onil - and he correctly noted that cheap stocks are cheap for a reason, because stocks are a commodity. And if a product is too cheap, then there are logical reasons to consider it not of very high quality.
You mean, if a stock is too cheap, it means that there is no interest in it from large capital - and, as a rule, such stocks have a very weak foundation and are on the verge of bankruptcy.

An investor who buys such shares runs the risk that their value may drop to zero at any time. And this risk is so great that Amer’s funds are simply prohibited from buying shares below $5.

Well, as an example of a “junk” stock, we can cite AMD, a formerly successful microchip manufacturer, but now the company is on the verge of bankruptcy:

Back in 2006, shares of this company were worth more than $40, but now they have fallen below 5...
The graph shows that the company has not experienced growth for several years.
And it may turn out that the shares of this company will fall even lower, because in 2009 they were already near zero. Are you ready to buy it now at a low price? Or maybe it’s worth understanding the reasons before rushing in with a joyful cry of “I’ll take anything”?

The question immediately arises: if these stocks are dangerous for investors, then can a day trader - a simple speculator, like you and me - benefit from them?

Unfortunately, those who want to “ride” on penny stacks face many dangers. Let's start with the fact that most of these stocks are classified as low-volatility. This means that these shares move so little intraday that it is extremely difficult to “squeeze” anything out of them - you can only hope for a miracle for years.
And these miracles sometimes happen - but only insiders make money from this, and no one will give you and me this information, and you won’t get it anywhere, even from paid sources.
For example, AMD stock has an average move rate (ATR) of just 16 cents per day.
And this is not just little, but very little - such low volatility makes it difficult to “recoup” the commission, not to mention trying to earn something from it.

Of course, there are penny stacks with a higher ATR, but I found only 6 shares with a high ATR > 0.50 (more than 50 cents) in the entire American stock market (as of yesterday - 08/16/13):

And this while the remaining shares are about 7 thousand!!!

So is it worth trading 6 volatile penny stacks after that when you can trade hundreds or thousands of more expensive stocks with much better performance? The answer is obvious - in this situation, penny stacks lose all their attractiveness even for any crazy day trader.

These examples clearly show that in today's market, penny stacks are no longer interesting for either the trader or the investor.

And if we add to this the second criterion - too low a volume, then this makes their trading in large funds completely futile.

And another risk when trading stocks that are too thin is a wide spread and, as a result, quite strong slippages. In such stocks you cannot keep low risk and have a high MM (risk-to-reward ratio).

What conclusion can be drawn from all this? Only one thing: do not trade such stacks intraday, and in the medium term they are more likely to be scrapped.

The main objection to this statement is usually the “successes” of the crazy guy - Timothy Sykes, whom many saw in the TV series “Wall Street Warriors” (AMG and other characters were there). Yes, these guys earned money at a certain time - there is no market and they have respect and honor.

But times have changed, and Sykes himself (probably one of all the movies) admitted at a seminar in Moscow that his strategy stopped working immediately after the end of the series, and he gave all the profits back to the market and closed the fund. Now not a single investor trusts him to manage money, and Tim himself has retired - he rarely trades and travels a lot.

The only truth now is that he just travels and does seminars - and all his seminars are profitable - not a single unprofitable one :)))

What is real is that his strategy gave a short-term effect on the fall of the dot-coms, but after that the market changed and the strategy simply stopped working. And many are trying to repeat this and are slowly leaking it...

Apparently, the idea comes that all strategies with “scrap”, in which penny stacks participate, are doomed from the very beginning by the very nature of these “garbage” stacks.

May all those who make money on this forgive me...

A couple of days ago he was a boy prodigy who made a fortune trading junk (cheap) stocks, and today he is considered just another scammer.

Seventeen-year-old Muhammad Islam recently made headlines for the sensation he made by making as much as $72 million trading junk stocks. But it turned out that all this was a big lie.

Of course, he's just a stupid kid doing what stupid kids do. At his age, people do stupider things, but thank God none of them came to the attention of the media. Now they talk about him as some kind of sinister fraudster who was able to fool the media and the public.

Unreasonably high expectations

In the world of cheap junk stocks, it's impossible to make a lot of money, let alone $72 million. But if you indulge yourself with unrealistic expectations, you will end up disappointed.

Anyone who has been trading penny stocks for many years can always remember the ups and downs, but in order to always come out profitable in the end, you need to be careful and judicious. They say that fortune favors the brave. And this is true, but she does not favor fools.

If you think you can become a millionaire in a couple of years by trading junk stocks, you're just out of your mind. If it were that easy, we'd all be millionaires. The point is, if you want to make money trading junk stocks, you always have to be disciplined and realistic about things.

You also need to follow some basic rules that have been shown to be effective in generating profits in the junk stock market.

Rule #1. Don't believe rumors and gossip

It sounds too good to be true. If you think you can invest $1,000 in a junk stock and withdraw $750,000 in a month, you're wrong. This will never happen. You have to admit that sometimes this is exactly what you want to do (this happens to everyone), but don’t let greed cloud your judgment.

Rule #2. Take the money and run away

To get rich in junk stocks, you need to act fast. This is not a place where a position is held for long enough. Junk stocks are good for quick profits. The fact is that they are very volatile, so today's profits can quickly turn into tomorrow's losses. If you manage to guess the direction, take the money and leave the market. Sometimes the situation changes in a matter of hours. And again, don’t let greed cloud your judgment.

Rule #3. Stay involved in the process

Junk stocks are not assets you can invest in and forget about for a while. We need to constantly monitor the situation. This is why junk stocks aren't for every investor. Successful traders in this segment of the stock market have sufficient flexibility and agility, and are also ready to act in the blink of an eye. Sometimes a good opportunity to make a profit appears in just a couple of minutes.

These rules are hard to follow, but they are life-saving and will help you make consistent profits from trading penny stocks...

Article by Alexey Smirnov

Only those who see the invisible can achieve the impossible

(unspoken motto of the FSB)

And now, dear reader, hold your breath, because the whole ins and outs of the Russian stock market will open before you.

And for starters, the simplest question: how much? exactly in Russia, stocks in which you can invest and in which you cannot? Even the readers of the site cannot answer: ten, twenty, fifty... Having dug through the entire Internet, you will never find the answer, and the ratings of Russian issuers from international rating agencies are simply disgusting.

So, we'll have to do this. But for this, dear reader, it is necessary to define criteria, and I propose the following:

First, we will highlight companies that have at least some sustainable competitive advantage over other Russian companies and even more so over their foreign rivals. Secondly, this is a competitive advantage for the company skillfully uses, i.e. Through smart marketing and distribution, it achieves maximum value in the eyes of customers. And even more so, the company should love to increase the benefits of a loyal customer base.

As you can see, I rated these three factors as 100% success. Without them, I a priori will not invest even a penny in any Russian stock, and I do not advise you to. Let me add right away that for me it is not a competitive advantage to have access to cheap government resources: gas (Gazprom), oil (Rosneft), money (Sberbank), etc.

And now what most Russian issuers simply have trouble with:

Majoritarians
people who do not respect other co-shareholders (like us, minority shareholders) deserve only bankruptcy
Managers
we want to find those who are active, honest and open to clients and all shareholders and who manage their money wisely. The rest are walking through the forest.
Information about the company in the media and its financial statements
here, for the majority, there is an absolutely gray area - normal analytics, reporting, and even simple interviews with management are often difficult to first find and then double-check. We also send such companies through the forest.

These factors do not have my assessment of success, because all this should be initially built normally. If there is even the slightest disregard for our interests or if there is a “skeleton in the closet,” we immediately pass by.

And now about the roller coaster. We all know that our world is cyclical, and stocks even more so. States, industries, companies and goods have their own life cycle:

first, the emergence of an idea (point A1), then its development and development of critical mass (segment A1-B), then sharp growth due to extensive or intensive growth (B-D), and then extinction (D-A2). And the next cycle.

For any investor, the ideal entry points are located on the segment from A1 to B [as well as the new A2]. At the same time, investments in the B-C segment must be assessed as soberly as possible, and certainly not to get into the Titanic at the last moment (B-D). The Titanic itself is indicated by a black line. I'm sure you understand that a great company that fits all of our criteria, but is in the B to A2 cycle, is not a suitable issuer for investment.

The last thing we need is our own rating. Alas, I don’t know how well you know about all Russian companies, so I immediately apologize if my sorting does not coincide with yours. So, here's how I'll filter out all the suspects and the minimal actions with them:

And the Moscow Exchange itself left us a hint in the form of the listing level of issuers (there are only three of them) - by getting into the second and third quotation list, we “get into” low-liquidity shares and start playing the lottery.

From the latest data (as of April 18, 2016) on all listed issuers on the Moscow Exchange, we know that there are only 260 .

So, let's begin.

Banks, investment offices and other guys

There are 31 of them in total. Of these, the first and most delicious is the Moscow Exchange itself (Vlad and I have already described it). And it's still in the buy-and-hold zone.

The second number - AFK Sistema - has obvious flaws: firstly, for me it is the internal network Intourist and the Sitronics holding. They can’t sell them, but it’s also difficult to turn them into an active plus. That is, the company has “ballast”. Secondly, this is the lost Bashneft and Uzbekistan. If the purchase of Bashneft according to the scheme of the 90s can be forgiven, then the loss of at least two billion dollars by the MTS company in Uzbekistan (first due to expulsion from the country, and then due to the revelation of bribes to the president’s daughter) raises big questions. On the plus side: there is obvious arbitrage here. After the case with Bashneft, AFK Sistema is still worth 185 billion rubles, owning in addition to 50% of MTS also a bunch of tasty assets. Although MTS itself is valued by the market at 534 billion rubles. Which already gives us a fair price for shares of not 19.21 rubles. (as of 04/22/16), and 27,67 rub. with growth potential of at least 44% .

As soon as the System itself gets rid of ballast, and MTS deals with the American prosecutor’s office, it will be possible to paint it green.

Rosgosstrakh has simply enormous potential: Russians have not even begun to fully insure their homes and lives, and there are still a lot of under-implemented options for liability insurance - cars, executives, civil servants, etc. The current crisis in the economy and the actions of the Central Bank of the Russian Federation should clear the insurance swamp of unnecessary competitors. In general, Rosgosuzhas is a pencil case.

Orange. QIWI is on an obvious decline: people are switching en masse from terminals to bank cards, and there is no new striking business idea. And all Russian banks initially “eat up” the free money from Sberbank and VTB. I have already written about Promsvyazbank and others like it, so I won’t repeat myself - during a crisis (read, downturn), your investments are doomed to zigzag downwards.

Red zone management does everything to make you shudder.

From the gray area, I would single out only Europlan: the very idea of becoming a leasing leader in Russia is interesting, but collecting all the market data for normal analysis is very, very difficult. The rest of the gray ones are really low-liquid unknowns: to invest in them you need to have awesome analytics and a super-strong nervous system.

IT

There are only three, and only Yandex stands out.

There are only four countries in the world (Czech Republic, South Korea, China and Russia) that managed to create their own search engine and not fall victim to Google. All other things being equal, the government will do everything to get Google out of Russia feet first, so Yandex has a country advantage and my respect for fighting on an equal footing with the world champion. Yandex will require a full analysis... The remaining two gray companies are weak.

Communications, telecom

10 companies, only 3 interesting.

There are only 4 “toll bridges” in mobile communications in Russia: MegaFon, MTS, BeeLine and Tele2. With the final transition to the 4G communication standard and, as a result, the ability for everyone everywhere to enjoy media on the super-fast Internet, MTS and MegaFon will become very desirable “cash cows”. MGTS has many more problems, but it is also able to use the advantages of its sister MTS through the integration of households in the Moscow region into the 4G “Internet paradise”. The rest are for the hussars.

Agrarians

Thanks to the sanctions, out of nine stocks, at least four are chocolate.

And Cherkizovo, and RusAgro, and Ostankino are doomed to growth. Abrau-Durso is also beginning to use the barrier for European wines and is expanding his vineyards. I painted Razgulyay orange and not red because of the “savior” in the person of RusAgro: the company was clearly not yet shredded, but it was also saved from bankruptcy. There is little information about the rest.

Trade, retail, restaurants

Everything is simple here: the best go forward, the rest catch up. There are only 11 issuers to choose from, but there are some very interesting ones.

Alas, the most effective in the world - Magnet - is already too expensive. His story will soon approach point B in the above diagram. Plus, there is also the catching up bulldog X5 Retail Group of Misha Friedman’s uncle, and among the yellow ones there are those who want to bite into the champion’s profits. But if suddenly there is a panic on the stock exchange with Magnit shares, then I will be their first buyer “at the bottom”.

Children's World is the story of the transition of growth from point A1 to B. Follow it more closely: this or next year the company will begin a leap upward.

Yellows have their own obvious business ideas, but the competitive environment is too aggressive. I won’t impose myself here - decide for yourself whether they are worthy of you.

Orange Rostix deserves respect for the fact that it is still alive, but you won’t see phenomenal growth from competitor McDonald’s. Plus the current crisis.

Red Pharmacies 36.6: too much debt and too much leapfrog with majority shareholders. The rest are gray biomass.

Pharmaceuticals

Not a single Russian pharmaceutical manufacturer has yet been able to come close to the world champions either in development, or in efficiency, or in financial performance. indicators, so I advise you not to touch the entire top five.

The good prospects for Pharmstandard cross out the desire of the majority shareholder to buy back shares from the stock exchange and investments in dregs like the German Formula 1 race track. Gray for extreme sports enthusiasts.

Aviation and space

Run, run past these stocks as far as possible.

UTair was saved at the last moment by Surgutneftegaz. Transaero is bankrupt. The best European airline of 2015, Aeroflot, with a monopoly on the rent ($200 million) from other airlines for flights over Siberia, managed to get into a loss again. GAZKON is a subsidiary of Gazprom, and that’s already enough. The state-owned RSC Energia has never been in the black, and it’s scary to even read about three NGOs.

Media, media

Everything is in loss and uncertainty. Amen.

Motor transport and agricultural equipment

Only GAZ has relative prospects. The rest, with varying degrees of wretchedness, are drowning or unknown. Anyone who wants to drown their money is here.

Gas workers

Of all those associated with gas, the most interesting is Mikhelson’s NOVATEK. This pretzel managed to build a new port (Sabetta) and almost completed the entire infrastructure there for transporting Yamal gas by gas carriers. Thus, he actually got rid of Gazprom's monopoly. And he also hedged his bets: his co-shareholders are Putin’s friend (Timchenko) and a bunch of foreign monsters (from the French Total to the Chinese “Silk Road Fund”). And everything is leading to the fact that NOVATEK, together with RosNeft, will soon break up Gazprom’s monopoly on pipeline gas exports. Take a closer look.

It is better to monitor Gazprom and others from afar.

Oil and petrochemicals

It's a royal industry, but there are not enough ideas.

I paint Lukoil green for its adequate growth and the absence of the state as shareholders. However, the company's foreign investments in gas stations and oil refineries raise concerns. There are too many unprofitable (such as gas stations and refineries in Ukraine) and dangerous (the West Qurna-2 field in warring Iraq).

Bashneft is in the yellow due to impending privatization.

Surgutneftegaz is wonderful, but the management does not know what honest and complete information for minority shareholders is. Tatneft has regional supervision, so it’s better not to touch it either.

State-owned Rosneft and GazpromNeft are the history of the “when” question. When will the next large capex appear and minority shareholders will say goodbye to normal dividends forever?

The gray area rarely appears in the news - either suffer for the sake of information, or immediately give up.

Gold, diamonds and coal

Everything is simple here: if you guess what stage of the raw materials cycle these goods are in, you are in communism, otherwise you are guaranteed a trip down the black line of the above diagram.

It seems that the world has been increasingly stormy lately, so that little gold is rising in price again, so let’s yellow all the worthy ones.

The coal flounders near the bottom, and it’s better not to remember the Southern Kuzbass (as part of the over-credited Mechel).

I hope you won’t interfere with the state-owned Alrosa during the upcoming IPO. Everyone else is in an unclear gray area.

Fertilizers and chemistry

The meat grinder organized by the Uralkali gang (remember the story of the arrest of Vladislav Baumgertner) with the Belarusian Potash Company reduced the efficiency of Uralkali: as a result, instead of a calm oligopolistic potash fertilizer market, a dumping struggle of all against all arose. It seems that the world market has almost calmed down and has been divided again.

Akron and PhosAgro are interesting and worthy of analysis. The rest are gone.

Metallurgy

The falling ruble has made this industry mega-efficient, but there are still losers here.

Norilsk Nickel has one problem - one of its majority shareholders is Vladimir Potanin. Let us remember: 1995, Potanin cheats Friedman at a loans-for-shares auction for the purchase of a plant - he took the plant for himself, and he simply returned the money (although the separate ownership was clearly stated in the papers he signed). 2008 - Potanin ditches Alisher Usmanov, who has already bought 4% of Norilsk Nickel, with a promise to merge the plant with Metallinvest. 2009 - Potanin begins a “war” with Deripaska for the company and dividends. His 2014 divorce and litigation with his ex-wife may still reshape the composition of shareholders. Plus, the emerging story with the Yukos case in The Hague ($50 billion) reminds that Volodya Potanin had better quickly sell his stake in the plant, before the story with the loans-for-shares auction from the 90s comes back to haunt him. And the price of a key asset – nickel – fell in the world, which forced the company to reconsider its dividend policy. But even so, Norilsk Nickel is worthy of your analysis.

NLMK is the most efficient and quietest of their metallurgists. It's also worthy of a microscope look.

The yellow ones have some problems: large debts (Rusal, TMK and ChTPZ), outdated equipment that will soon require a large capex, or the management itself is ruining profits on foreign projects (Severstal and MMK). But given the current situation, they are absolutely not afraid of this.

The debt-ridden Mechel and the state-owned VSMPO-AVISMA are not conducive to investment. I won't say anything about the gray ones.

Energy

With all the wealth of choice (and this industry has given the country the maximum number of issuers of ordinary shares), I do not see a single one worthy.

The key player in the industry is the Federal Tariff Service. And even if you die, the profits of all these companies are limited by a glass ceiling based on the principle of “costs + ...”. In addition, the wear and tear of equipment, the fraudulent population and the constant capex are completely deterrent.

The only worthy ones are foreigners who already know how to cut costs. But, judging by the news, they too are exhausted by Russian reality and want to leave.

Only if you have some super knowledge about all these issuers can you throw yourself headlong into such a pool. But I definitely gave up.

Industry

The level of listing and the absolute unknown about changes in such companies make them uninteresting. All risks are on you.

Construction

The crisis in the construction industry outside the window forces you to stay away from these guys.

If you need to choose the best of the worst, then here it is:

Based on the results of 2015, LSR is the champion in terms of profit among its peers, and Mostotrest is loaded with private and government orders until 2020. But they are both still in the “stay away” zone: maximum for analysis and understanding of industry trends. No one has any obvious competitive advantages.

PIK is still getting out of debt, and Hals-Development belongs to VTB, wow.

Transportation and port

The current decline in the international transportation market is forcing this industry to pass by. Only TransContainer stands out from the rest and can shoot in the future.

NMTC was a great investment idea when it remained private. But the current majority shareholders - the state-owned Transneft and the Summa group (Z. Magomedova) - also manage to quarrel with each other. In general, we stay away from the rest.

Different

This section includes companies outside the group.

Only the vodka company (Synergy) stands out, for which there is at least a little news and the prospects are relatively clear: it strives to become a leader.

All the rest need not be analyzed for now - their future is vague. Well, someone is absolutely gray.

TOTAL

And only now, dear reader, do you know the correct answer: from 260 -those ordinary shares/depositary receipts on the Russian stock exchange are worthy of our most sincere interest 14