After the massive gas deal between Russia and China, Gazprom looks like it might be an interesting play.

• We know it will be doing $400 billion of business over the next 40 years.
• The market has discounted the price of Gazprom over concerns that Europe may stop buying its gas. However, this is an unlikely scenario.
• The company trades at a P/E of 3. Part of this may be because of distrust of accounting at Russian companies. However, the valuation looks extremely low.
• Russia’s market as a whole has been discounted because of the invasion of Crimea. This discount may subside as the situation de-escalates.
• The key risk is the cost of building the pipeline. China will front $25 billion for the deal. However, the excess costs will come out Gazprom’s capital expenditures. These costs will come over the next several years, while the revenues from the deal will not come until 2018. Equity markets are notoriously short-sighted, typically with a time horizon of 18 months. So any gains in the stock may not come until 2016-2017, while in the near term the stock may be weighed down by costs.