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

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

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 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!