The companies covered in the following reports definitely cannot be considered blue chips. Rather, they are relatively obscure organizations and are standing on the edge of bankruptcy. However, such undervalued companies can offer investors extraordinary returns. The primary considerations are whether the troubled companies are capable of turning things around and can then build on forward momentum.
An example of the upside potential that this speculative strategy is capable of achieving can be found in the case of the Far Eastern energy provider, "Dalenergo". In January-February of 1997, some daring desperados* were buying "Dalenergo" for 7-8 rubles a share. At the time, an investment in this energy utility, which on more than one occasion had to turn off electricity and essentially freeze entire cities due to lack of fuel and a non-payments crisis, was considered to be quite ghastly. However, by July of the same year, the shares were trading for 80-100 rubles, thus generating a 10-fold profit. If one can dismiss an extremist theory that the giant tsunami will demolish the Russian Far East, an inevitable conclusion follows: according to risk-reward criteria, buying stock in companies that are lying in the dust due to temporary difficulties dealt by Russia's economic reform program is not a greater adventure than buying the so called Russian "blue chips".
Similar speculations are applicable not only to separate enterprises
but to Russia as a whole. For this reason, if someone was untamed enough
to invest in Russia in the first place, or moreover was so bold to have
been born and live in the country, then the next logical step would be
to allocate a small portion of his daily allowance to high risk investments.
Such possibilities are found in Russian enterprises that are currently
trading at bargain prices and are just now emerging from the threat of
bankruptcy.
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*OPM-Bank and its clients were among these "desperados". However,
it must be noted that the policy of OPM-Bank is not to allocate
a significant portion of one's portfolio into such high-risk investments.
Lying in the Dust: