Gencorp Inc (GY), Petroleo Brasileiro Petrobras SA (ADR) (PBR): High-Quality Companies You Should Consider

Page 1 of 2

I always liked to look for investments that might have huge up-side potential. Of course, this up-side comes at a cost such as political risks or lack of liquidity. Here, I present two very un-covered companies that I have been looking at for very specific reasons, and I which I believe offer limited downside and huge up-side potential. These companies will not be a huge part of my portfolio, but I think they might deserve a bet.

Betting on M&A

Petrobras Argentina SA ADR (NYSE:PZE) most commonly know as PESA, has strong fundamentals, huge potential shale reserves in the Vaca Muerta basin, and trades cheaply. But, most importantly, it’s a perfect M&A candidate. As a matter of fact, the company has recently received a bid (the sum was not disclosed) that was considered too low by its controlling shareholder, Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR). I think it will not be long until bidders come back with a higher offer.

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

Moreover, the company’s fundamentals are strong. PESA continued to report strong results in the fourth quarter of 2012, on the back of increased revenue in local currency and improved operating margins in the exploration and production (E&P) segment. EBITDA benefited from higher gross profits, mainly driven by the E&P segment, along with sizable reductions in operating expenses resulting from controlled SG&A management and lower exploration expenses. Results comparisons versus the previous year were impacted by substantial non-recurrent expenses undertaken by PESA throughout 2011. As a result, EBITDA in 4Q12 and FY2012 increased substantially by 218% year-over-year (yoy) and 95% yoy, respectively, with marked margin expansions.

As previously mentioned, during April of this year, several newspapers reported that Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) was studying the possibility of selling 51% of its current stake in PESA (Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) currently owns 67% of PESA) to Oil Combustibles. The deal did not go through, but I am sure we shall see much more activity going forward. After all, PESA trades at 1 time EV/EBITDA and pays a growing 3.7% cash dividend yield. This is just a fraction of the price you need to pay if you want to buy Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR). The Brazilian oil giant trades at 6 times EV/EBITDAX and, since it’s controlled by the Brazilian government, it has zero chances of becoming an M&A target.

A market leader with huge growth ahead

Gencorp Inc (NYSE:GY) provides missile defense and satellite propulsion systems to clients such as the U.S. Department of Defense and NASA.

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

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

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!