Buy into Petroleo Brasileiro Petrobras SA (ADR) (PBR)’s Collapse

Page 1 of 2

Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) has fallen hard. In 2008, the company was the global stock market’s emerging market poster child, a successful private-public venture sitting on the largest oil reserves discovered in the Americas in recent decades.

Over the last two years, the company’s share price has done a slow motion tumble from $50, hitting a new low of $14.60 this week. Investors have dumped the stock as the government maintains low domestic fuel prices and Petrobras’ costs rise across the board. Forbes writer Kenneth Rapoza has staked out the bear stance on Petrobras, questioning CEO Maria Graça Foster’s statements in addition to outlining Petrobras’s recent and future concerns. I take a bull position: Petrobras’s share price collapse makes it one of the most attractively priced oil stocks in the market.

Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR)Background

Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) is Brazil’s state oil company. With international partners, it develops Brazil’s growing oil reserves, while refining and selling oil and gas throughout the country. The company went public in 2003, but the Brazilian government retains a majority stake. Shares hit $70 right before the financial crisis in 2008, took a fall, and then appeared to recover in 2009, reaching $50 as investors poured money into Brazil’s quick recovery and fast GDP growth.

Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) sunk with hopes of sustained 7% GDP growth and a series of problems continue to push the share price down. First, Petrobras refines and sells for the domestic market, but the government sets fuel prices, often below market price. Capped fuel prices are great for consumers, but limit profits and – coupled with rising production costs – can cause losses. Second, Petrobras faces rising costs on all fronts: labor costs are rising in Brazil, industrial and fuel exports are on the rise as the Brazilian real loses ground to the dollar, and estimates for Petrobras’ capital expansion projects keep going up. In early February, Petrobras cut its dividend to keep its capital expansion plans on track.

High uncertainty, high rewards

A tumbling share price means that Petrobras is much cheaper than its peers, with a lot of potential upside and little downside left. Petrobras trades at .58 price-to-book. In other words, it trades for almost 50% less than its existing assets are worth – and the company is sitting on some of the largest oil reserves in the Americas.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!