Consider Petrobras, because market position matters

Posted Apr 23rd 2009 5:40PM by Joseph Lazzaro
Filed under: Stocks to Buy

It goes without saying that one of the sectors preferred in this space is the integrated oil sector, and when one can combine a demonstrated business model with a dominant market position, that's the equivalent of a baseball doubleheader, which is why Brazil-based Petroleo Brasileiro SA (NYSE: PBR), also known as Petrobras, is worth a review.

In general, analysts expect Petrobras' oil and gas production to increase about 2% in 2009. The company has proved reserves of 11.7 billion barrels of oil equivalent, 14,200 wells, and 5,970 gas stations.

Earnings will likely dip in FY 2009 but are expected to rebound in FY 2010 on likely higher oil prices stemming from the Brazilian and global economic recoveries.

Other positives: Despite the fact that the government of Brazil holds a controlling position (56% of voting shares) in PBR, the future is bright for the company due to Brazil's hydrocarbon sector deregulation, the company's dominant position in the country (refining, marketing), and a promising capital spending program. Finally, a p/e of 8 adds to the favorable risk/return.

Stock Analysis: Petroleo Brasileiro SA is a moderate-risk stock. Consider buying a 25% position in PBR now; then buy another 25% in three months, if Brazil's economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your PBR position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $17.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: integrated oil companies, PBR, Petrobras, Petroleo Brasileiro SA

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Reader Comments (Page 1 of 1)

4-24-2009 @ 9:39AM

Ty Cobb said...

Doubleheader is the term used to describe two baseball games played between the same two teams on the same day. It has nothing to do with stronger or weaker performance.