How to navigate Russia's invasion of Ukraine, according to one asset manager

Published Thu, Feb 24 20226:25 PM ESTUpdated Fri, Feb 25 20227:36 AM EST

Patrick Armstrong, chief investment officer at Plurimi Group, has explained how he's navigating the Ukraine-Russia conflict, including one trade in particular. Armstrong advised investors to look for assets that, in the long term, are trading at levels below their fundamental value. One way to do this, he said, was to look at companies trading below their historical price-to-earnings multiple, which is an important metric used by traders to gauge the value of a stock. "It's not a time to want to be de-risking," Armstrong told CNBC's "Squawk Box Europe" on Thursday. Russia invaded Ukraine early on Thursday morning, with military assaults across the country. Russian President Vladimir Putin announced the attack early on Thursday morning, declaring that Russia was carrying out a "special military operation" in Ukraine. The invasion comes just days after Putin sent Russian troops into the two eastern Ukrainian breakaway regions of Donetsk and Luhansk, having recognized their independence. Against the backdrop of this escalating conflict, Armstrong said investors "want to be long commodities, long equities that aren't going to be disrupted, that have real earnings and you really want to be out of the 'dream stocks'." 'The trade to do' Instead, Armstrong said he preferred what he described as cheaper stocks. "I think the trade to do is you buy stocks that are trading 12x earnings and below, and short the stocks that have no earnings." He also said that investors should be looking to invest in companies that could benefit from possible sanctions against Russia. For instance, he highlighted that Russia has said that if there are sanctions cutting it off from the international payments system SWIFT , then it has threatened to cut off gas exports to Europe. The U.S. and EU had already set out a raft of sanctions in an attempt to deter Russia from invading Ukraine, with measures targeting the country's banks, sovereign debt and wealthy individuals. President Joe Biden has promised more sanctions, following Thursday morning's invasion. Armstrong pointed out that Russia is a big aluminum exporter and that there are a lot of companies which produce the metal that are trading on "very low multiples." Armstrong explained that higher energy prices would also raise aluminum prices. Armstrong also recommended looking at shipping companies, which he said were "incredibly cheap," with many trading on 3x earnings. "There's companies that aren't necessarily defensive that are cheap, that I don't think are going to see their earnings decimated from what's going to happen," Armstrong said. In addition, he said investors should own companies that "own the goods that will be in shorter supply from this" crisis. Avoid 'no-earnings' tech companies Armstrong said he "didn't mind" owning tech stocks that were profitable, generating cash and dominate their sectors. Although not cheap, he said "those are the kind of companies I'd be happy to buy on the dip." But he stressed the "no-earnings tech companies" should be avoided. These are trading at "incredibly high" price-to-earnings ratios and often have "no earnings at all" currently, he said. "It's not the kind of market where those kind of stocks will be rewarded." A jump in oil prices due to the conflict has led to concerns that this could drive overall inflation higher, complicating the Federal Reserve's strategy of hiking interest rates to rein in rising prices. Armstrong said that "we may have a Fed who won't hike as aggressively as they otherwise would have, but war and sanctions are 'stagflationary' — they don't create growth, they create inflation but not the right kind of inflation and that should lead to a steepening of the yield curve." "You can't own a 10-year Treasury yielding 1.7% with a backdrop of stagflation," Armstrong added, explaining that the inflation part of that scenario will eventually lead to higher Treasury yields. And even if the Fed doesn't hike as aggressively as it would have, Armstrong believed there would be "higher consequence, higher discount rates because of risk" on those no-earnings technology companies.

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Patrick Armstrong, chief investment officer at Plurimi Group, has explained how he's navigating the Ukraine-Russia conflict, including one trade in particular.