Baron Rothschild’s advice to, “Buy when there’s blood in the streets,” is not thought to be a literal recommendation. The idea is that overwhelming fear drives rational investors to irrationally sell good stocks, which can be picked up for huge discounts while emotions dominate sentiment.

Sometimes, unfortunately, battles over territory lead to actual bloodshed, as we’ve been witnessing in Eastern Europe.

#-ad_banner-#The ongoing conflict between Russia and Ukraine has continued for longer than almost anyone predicted and still shows no sign of easing. Investors have responded by dumping Russian stocks. The Market Vectors Russia ETF (NYSE: RSX) has slid nearly 30% this year, matching the steady slide of the Russian ruble. 

Concerns of an expanded conflict, coupled with a rapidly-slowing Russian economy, means that the Moscow Interbank Currency Exchange (MICEX) now trades for less than five times trailing earnings. The index is trading at its steepest discount to emerging market equities since at least 2005.

Rational investors may want to heed Baron Rothschild’s advice and look beyond short-term fears. Indeed behind the grim news are some real positives: Russia recently signed two huge trade deals with China that go a long way to blunt economic sanctions from the West. China bought a 10% stake in OAO Rosneft’s Siberian unit, and two natural gas supply deals could fuel 17% of China’s natural gas demand by 2020.

Competition for Russian gas could weigh on Europe’s resolve to support the government in Ukraine. At this point, a lasting agreement may still take months to achieve, but  it appears unlikely that  the conflict will spill over into a larger regional or international problem.

When any deal is finally reached (or even on the momentum toward a deal becomes apparent), Russian shares could quickly rebound, which has led me to take a fresh look at investment opportunities. And by my math, a leading Russian telecom is now a solid value play.

Mobile Telesystems (NYSE: MBT) is the largest telecom in Russia and the Commonwealth States, with more than 100 million mobile subscribers in five countries. The company has the highest growth rate in mobile data revenue among peers in the market and the lowest churn rate of customers. MBT sports the fastest 3G/LTE network in Russia, is the #2 broadband provider and the #3 paid TV provider.

Though mobile penetration in Russia is high (143%) due to multiple SIM cards, smartphone penetration is still only 30% and represents a huge opportunity for growth. MBT is aggressively diversifying revenue with its 3i strategy (integration, internet, innovation) to transition from a pure-play mobile operator to a fully integrated telecom giant. The company has expanded into eight service segments (shown in the graphic below) with no segment accounting for more than 23% of total revenue.

Each ADR of MBT is worth two ordinary shares, which trade on the MICEX under the symbol MTSI. Ordinary shares have lost 18% so far this year, while the ADR shares have plummeted 35% due to a plunge in the value of the ruble.

Management lowered fiscal year guidance in August due to the ongoing conflict in Ukraine, but reaffirmed its aggressive dividend policy of at least 75% of free cash flow or RUB40 billion per year. On the heels of RUB77.6 billion in free cash flow over the past four quarters, MBT has boosted its dividend 19% in the first half of 2014. The current yield stands at 6.8%.

Is Putin power a problem for investors?
While the Russian government does not own a stake in MBT, it still plays large in the company’s future. The company’s dominance in the market could be categorized as a monopoly, though current legislation does not define the market in terms of types of service or geographic area. The Russian government has expressed a desire to see a fourth telecommunications company enter the market to increase competition. While that would limit growth for Mobile Telesystems, it would also help ease fears of monopoly control on the market.

The Russian government completed the reorganization and public issue of state-controlled telecom Rostelecom in 2011 and still owns 47% of the shares. The government’s plan to  sell much of its remaining stake has been delayed on recent market weakness. The planned sale of the carrier leads me to believe that the government does not want to be in the telecom business and that investors shouldn’t fear an expropriation of MBT’s assets.

While anti-trust regulatory action hangs over the stock, competition is high enough in the market that any government action is far from certain. VimpelCom Ltd (Nasdaq: VIP) is a strong competitor and the growth of Rostelecom should ease fears of market control by any one company.

Shares trade near the 52-week low and are valued at 9.4 times expected 2014 earnings. That price-to-earnings multiple is well below the average 14.2 times multiple over the past five years.

Another potential kicker: Any improvement in the economy or a de-escalation of the Ukraine conflict could send the ruble back to Rub35 to the dollar (from a current 45.7), which would boost the returns for ADR investors. If the ruble strengthens to that level, shares could rise to $19.62 (based on projected 2015 profits and a target P/E of 10). That represents a 47% gain on the current price beyond the attractive 6.8% dividend yield.

Risks to Consider: Shares of Russian companies are not for the faint of heart and the ongoing conflict in Ukraine could keep a lid on sentiment well into next year.

Action to Take –> Shareholders willing to look past near-term geopolitical risks can grab one of the world’s largest telecom companies for a huge discount. Shares of MBT pay an attractive yield above 6% to compensate investors for their patience and offers double-digit returns on any turnaround in the ruble.

Given the inherent nature of why MBT is in value territory, it is a risky investment. Not all foreign investments have to be like that. In fact, 79% of the highest-yielding investments are overseas and they are just as safe as the average U.S. firm. To gain access to the latest investment ideas and trends, click here.