Petrobras is progressing

Posted Aug 20th 2009 1:50PM by Joseph Lazzaro
Filed under: Stocks to Buy, Petroleo Brasileiro (PBR)

It's goes without saying that I favor integrated oil plays, particularly those with a product or regional advantage. Therefore, I'm Reiterating my Buy rating for Petroleo Brasileiro SA (NYSE: PBR), also known as Petrobras, first recommended on April 23, 2009 at a price of $32.99. If you purchased PBR at that time, you're up a nice 30%.

Petrobras is performing better than forecast: Q2 oil/natural gas production increased 5.7%, to 2.524 million barrel per day of oil equivalent (MMbbl./day). Moreover, PBR is on track for 5-6% production growth for the year.

Add the above to a projected 7% annual production increase for 2010-2013, the company's dominant position in Brazil (refining, marketing), and a promising capital spending program, and PBR is not a 'back up the truck play,' but it's close.

Stock Analysis: Petroleo Brasileiro SA is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in PBR now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your PBR position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $17.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

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