In the case of an oil company, fire is not exactly something you look upon favorably. But when it's the stock, you have to get excited. One of my stock picks for 2007 was PetroChina Co Ltd ADR (NYSE: PTR) and for the past two weeks it has been on fire.
Before I go further I must disclose we own PTR in three portfolios, buying in at $44, $55 and most recently at $120 this year. Today as I write this post it is over $180 per share so for a multitude of reasons it is making me look good.
I have been questioned numerous times about this stock holding given that "my pal Warren" -- Berkshire Hathaway (NYSE: BRK.A) has been selling. According to the story he sold at an average price of $147 per share most recently. What few fail to mention is that he kept 90% of his shares. There are any number of reasons he took this action and those have not been shared.
In the meantime I have sold nothing. I did not buy it because Buffett bought it and I am not selling it just because he is reducing his shares. One pressure on Berkshire is that political ramifications of PetroChina doing business with the government of Somalia (and Darfur) has put questions into some shareholders' minds about whether it was immoral to hold PTR given the documented human rights violations in the region.
But how many oil producing nations today can be looked upon favorably? Almost none in the Middle East, given the standing of women, non-Muslims, political opposition, freedom of speech and many more severe atrocities. How about our friends the Russians or the Chinese? Would anyone nominate them for a congeniality award or glowing examples of democracy? No way! So the world is complex and sometimes you can do more by working from the inside with a whisper, then you can screaming from the outside.
So what does the new high priced stock of PetroChina look like from an investor's standpoint going forward? For starters, it is still paying a healthy dividend of 2.8%. That is a good thing. One of my original reasons to buy the then discounted PTR, was that I figured there was zero chance of the Chinese using less oil tomorrow than they did yesterday. This is a very compelling rational given the primitive nature of most of the country and its projected growth curve over the next few decades. I wrote about this last December.
PetroChina still has strong ROE, ROA, ROI and a great net profit margin. So while today the stock is screaming forward because of the regulatory OK for an IPO, I might suggest not rushing into an over-heated market, but would still recommend putting this stock on your watch list for an opportunity to make it a core holding. I am not alone in this regard as other shareholders feel the same way I do.
To find potential opportunities and verify my track record read Chasing Value or Serious Money.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He is on the advisory board of Internet start-up CircleBuilder.com.
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Reader Comments (Page 1 of 1)
9-24-2007 @ 4:45PM
Sheldon L said...
For the record PTR closed up 8.31% to $181.12.
9-24-2007 @ 5:24PM
investag8ating said...
Yeah but if we have a global recession the price of oil might have to go down globally. Plus with all the recalls on China, how do we know it won't have a negative effect on their exports?
9-24-2007 @ 7:00PM
Sheldon L said...
China imports oil, not exporting yet. I said add to watch list, not buy at all time high. A recession might present a buying opportunity, all the more reason to keep track of this company. In the long run oil goes up in price and China's growth rate will exceed their ability to find oil.
9-25-2007 @ 8:31AM
investag8ting said...
I never said China exports oil I said the items they do export are tainted, substandard and are being recalled which may effect their exporting. If their exports are effected then their demand to import oil may slow. If we have a global recession and China is included in that recession, then oil imports might slow which will cause oil prices to come down. But now that you pointed out you wrote putting it on your watch list vs. buying high, I have to say that I agree, sorry I misunderstood you. :)
9-25-2007 @ 12:29PM
Sheldon L said...
"Inv.",
Yes we can agree, and if a global recesssion affects this stock then that will present the buying opportunity that does not exist at this point in time.
I hope you will continue to follow my stories and add your insights.