Many of the world’s best businesses have their roots in the United States of America. United States Steel Corporation (NYSE:X), Chevron Corporation (NYSE:CVX), and PG&E Corporation (NYSE:PCG) are three shining examples of the amazing feats corporate America can accomplish.
That being said the American economy has already gone through its prime growth period. If you look at a chart of GDP from 1950 to today you will notice two things.
1. If you had the ability to, but did not invest in American business, you will undoubtedly feel like a fool.
2. The steep incline of the chart is not something that can be maintained indefinitely. To borrow a phrase from Warren Buffett, “geometric progressions tend to forge their own anchors.” Therefore, many investors are turning to countries whose GDP is widely believed to be in the primal stages of ascent. One such country is Brazil.
You got your Chevron
So Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) isn’t exactly a mirror image of Chevron Corporation (NYSE:CVX),. It was a government monopoly until 1997. Then after nearly 45 years, the Brazilian government decided to offer individual investors a chance to own a piece of this pie.
Common stock equity is at just a bit over $337 billion and working capital sits at around $48 billion. And while long term debt more than doubled in the most recent quarter, its total debt to equity ratio of .58 is still low.
In fact, average annual operating cash flow over the past four years was $28.75 billion. And for students of Ben Graham, Petrobras’ price/tangible book ratio of .39 means it’s a tasty buy. This from a company Mr. Market is offering for a tad under $100 billion.
And your PG and E
Centrais Eletricas Brasileiras SA (ADR) (NYSE:EBR) is far and away the largest utility in Latin America and it completely dominates electricity generation in Brazil. The tangible book ratio for Eletrobras sits at .1, equity stands at $33 billion dollars, and working capital is just over $8.1 billion. Average operating cash flow for the past four years was $4.2 billion. And all of that was in 2012 when it earned $6.7 billion. Mr. Market is currently offering this business for $2.9 billion dollars.
I have two primary concerns with Eletrobras though. First off becoming an owner in this company means being a partner with the government of Brazil. While this is not necessarily a bad thing, it’s wise to be wary of companies where a government controls a stake of over 50%. Also, stability at the CEO position has been laughable with six in the past decade. Still, this thing is cheap.
Last but not least
Gerdau SA (ADR) (NYSE:GGB) is the world’s 14th largest steel company. The only company of the three mentioned here that has never had the Brazilian government as a majority shareholder. Investors who view high price-tangible book or price-earnings ratios with contempt won’t be disappointed here with ratios of 1.24 and 4.74 respectively.