After a stock split, shares of Petrobras (PBR:NYSE) have become even more attractive.
At $71, you're buying a dividend paying $314 billion company with a P/E of 24, $103 billion in revenue, and $8 billion in cash. It's a great long-term bet with $100 price targets.
Plus, on an unexpected investment grade upgrade, the Brazilian rally has only just begun.
Standard & Poor's surprised the market when it lifted the country's long-term sovereign credit rating to investment grade, thanks to faster Latin American growth and a decline in international debt.
Brazil's GDP is forecast to grow 4.8% this year after a 2007 expansion of 5.4%, and isn't expected to be impacted much by the U.S. slowdown ripple effect. That's because its exports to the U.S. makes up only 2.5% of Brazil's GDP.
And if you need further reason to get bullish on Brazil, Citigroup believes the Brazilian Bovespa will end the year 10% higher at 74,000. "The main benefit of Brazil's elevation to investment grade is yet further increases over time in capital inflows into Brazil, which should have the effect of raising the valuations attached to Brazilian financial asset prices,'' said the bank.
"The upgrade ‘is a strong long-term positive for the country's financial markets' and probably will reduce the cost of capital by 40 basis points to 5.7 percent."
It's part of the reason Petrobras is an attractive buy.
Earnings Aren't Too Shabby Either
PBR posted a 68% rise in Q1 profit, easily beating expectations on higher oil output and prices. Net profit totaled 6.9 billion reais ($4.1 billion) from 4.1 billion reais year over year. EBITDA rose to 13.8 billion reais from 11 billion. The Street was only looking for profit of 5.6 billion reais and EBITDA of 12.6 billion reias.
But the biggest reason to get bullish on PBR is the idea of $200 oil.
These are the guys that explore and produce oil and natural gas, selling to Brazil and other foreign markets. They operate oil tankers, pipelines, marine, river and lake terminals, power plants, you name it.
They've recently discovered three giant oil fields in the Santos Basin, and confirmed a natural gas deposit in Jupiter. And if reports on the potential size of the Carioca-Sugar Loaf are correct, the company could be looking at 33 billion barrels of oil, or the third-largest oil field in the world. That's in addition to the Brazilian oil finds in Tupi and Jupiter, which are each estimated to hold six to eight billion barrels.
Even if it takes years to see this oil potential, betting against a giant like PBR may not be the smartest move.
Good Investing,
Ian L. Cooper
P.S. How to Bank Gains when the Lights go out...
California's energy consumption efforts have done little to prevent blackouts. From 1979 to 1999, California residents jumped from 23 million to 33 million. Today, there are 38 million and expectations for 45 million residents.
In the long, hot, sticky days of summer, there will be blackouts. Greater electrical dependency from a larger population makes it difficult to say everything will be fine.
The California Independent System Operator has already warned that the "likelihood of going to a Stage 3 power emergency is 10 percent compared to 3 percent last year." Stage 3 allows the state to cut power to certain customers to prevent power system failure.
San Diego Gas and Electric saw record electricity demand in 2006. That record was then broken in 2007. And while the company has taken measures to reduce 2008 blackouts, the only way to prevent blackouts is voluntary conservation and "on-call interruptible loads."
And when the power grid can't take the pressure this year, we'll see widespread power failures.
How many people will voluntarily shut down power on a blistering hot day?
Fortunately, there's one stock that'll run, like it has with other power failures. And we're looking to bank at least 50% every time it happens.
On August 14, 2003, a power failure in the northeastern USA and central Canada hit 50 million people. One stock popped from 25 cents to $1.25.
On September 19, 2003, Hurricane Isabel destroyed electricity for 4.3 million people across the United States and part of Canada. One stock popped from 60 cents to more than $1.
On September 4, 2004, five million people in Florida lost power after Hurricane Frances. One stock ran from 25 cents to 75 cents.
On August 26, 2005, 1.3 million people in Florida lost power because of Hurricane Katrina. One stock ran from $1 to $5.
In 2006, we witnessed the Queens blackout that affected more than 174,000 people. The stock ran slightly.
The stock ran again in 2007 from 75 cents to more than $2.20 around the time that power interruptions shut down some of the Internet's biggest sites.
Listen, I could go on with the reasons why I like it as a seasonal trade, but I also like it for potential profitability.
These are the guys can buy power from the grid at cheaper costs and sell it at higher cost.
Just last week, they were awarded a $300,000 contract to provide energy storage system to support a California Energy project. And just the other day, they received environmental approval to assemble their energy storage system in New York.
But while the stock ran up more than 20% on the news, the run is far from over. We're just nearing the hot, sticky months of summer where blackout news could be commonplace.
SC Trading Pit just revealed the stock here.
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In case you missed our other investment opportunity highlights, here's what we covered in Wealth Daily, Gold World, Energy and Capital, and your free blogs for the week of May 19, 2008.
Gold Investment Advice: Play the Market, Don't Get Played
There are two types of investors, those who play the market and those that get played by the market.
Plug-In Hybrid Electric Vehicles: GM's Future: See It With Your Own Eyes
Over the past few years especially, I've had little sympathy for some of the major auto-makers that have been losing loads of cash. The way we see it, they brought it on themselves by trying to force the market, instead of supplying it properly. Especially General Motors...
Haynesville Natural Gas: 1 of the Biggest Natural Gas Fields in the U.S., and The Stock Play Behind It
On Saturday, my colleague Ian Cooper talked about the upcoming boom in wind energy. As you know, Boone has been one of the biggest supporters of wind energy. But wind isn't the only energy source praised by Pickens. In the wake of record crude oil prices (reaching as high as $129.60 during trading today), natural gas has followed suit.
Renewable Energy Companies: How NASA and Eggs are Hatching Spring Profits
What we're seeing, as I hinted at earlier, is climate change prevention spending finally trickling down to the individual company level.
Little People Mean Nothing: "This is unbelievable. Disgusting," says Mozilo.
You'd think that after making millions by brilliantly running a company into the ground with an army of attorneys at your side, Mozilo would know the difference between "Reply" and "Forward."
Alternative Energy Investments: How To Turn Record Oil Into Record Profits
So far this year, Americans have purchased 1.7% less gas than they did last year.
Let's Sue OPEC: Can you imagine the Chavez reaction?
Yep, the House wants to sue OPEC for "limiting oil supplies and working together to set crude prices." The bill, if passed, would subject OPEC oil producers, including Saudi Arabia and Venezuela to the same antitrust laws that U.S. companies follow. Can you imagine the Chavez reaction?
Peak Oil and the Bakken Formation: President Admits to Peak Oil
As oil prices continue their endless northern trek, those of us "in the know" knew this day would come. The peak oil argument is no longer open for debate... It's here. We just need to figure out how to deal with it.
Uncle Sam's Phony Economic Numbers: The Fix is In
In case you haven't noticed lately, there is something of a gigantic disconnect between the realities that consumers face every day and the statistics on inflation that the government is kind enough to provide us with.
Investments in Vietnam: Economic Growth in Vietnam and China
You can see it all over the Middle Kingdom-old government-run department stores with bare shelves and outdated styles have given way to western-style showcases of modern fashion and technology-often in the same building.
How to Profit from LED's Powerhouse
We're not talking about small industry growth either. In 2005, the LED industry was valued at $205 million. By 2011, it could be valued as high as $1 billion—388% growth in six short years.
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