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Posts Tagged ‘petrobras’

Time To Buy Brazilian Dividend Payers (CIG, VALE, PBR)

December 18th, 2012

Steven Orlowski: Investors love dividends; they give you money in return for being a shareholder. Dividends can change however, reflecting different aspects of a company’s fortune. Three Brazilian dividend stocks may be worth a look. Read more…

Dividends, Markets, World News

5 Of The Biggest Oil Finds In History (CVX, BP, XOM, COP, TOT, PBR, RDS.A)

December 7th, 2012

Stephen Simpson: Oil makes the world go ’round, and finding more oil is one of the principal goals of multinational energy giants like Exxon Mobil (NYSE:XOM), British Petroleum (NYSE:BP) and Chevron (NYSE:CVX). Unfortunately, it has become harder and harder to find fields Read more…

Commodities, Crude Oil, Energy

This Could be the First $1 Trillion Stock

December 8th, 2010

This Could be the First $1 Trillion Stock

The day will come when a public company becomes worth $1 trillion. It's a big number to swallow, but I think it's possible…

When I say a company will one day become “worth $1 trillion,” I'm referring to when a company reaches a market capitalization, or the number of shares outstanding multiplied by its stock price, of $1 trillion. Frequently, record-breaking market capitalizations coincide with a huge market run up or stock market bubble. Many Japanese firms had the largest market caps in the world when the Nikkei exchange reached its peak in December 1989. After that, it started a steady downward slide.

A couple of companies have come close in recent years. PetroChina (NYSE: PTR) boasted a market cap of more than $700 billion back in 2007, while Microsoft (Nasdaq: MSFT) posted an eye-popping market cap of almost $600 billion back in 2009. Both companies currently sport market caps less than half of those peak levels.

The first trillion dollar firm could stem from a future bubble, but it very well could result from a company that gets there the old-fashioned way — by growing sales and earnings. Stock prices follow fundamentals over the long haul, so the only way a firm is going to get there is by improving operations and investors taking notice.

One massive firm that could potentially get there is the Brazilian energy giant Petroleo Brasileiro S.A. (NYSE: PBR). Better known as Petrobras, the company has very ambitious expansion plans and recently completed a nearly $67 billion capital raise campaign by issuing shares on both the Sao Paulo Stock Exchange in Brazil and New York Stock Exchange here in the United States.

Petrobras bills itself as the fourth largest energy firm in the world. The company reported $116 billion in sales and nearly $16 billion in earnings last year. Its current market capitalization is just over $200 billion — so it would need to grow five-fold to get to $1 trillion. But I think it could get there.

That's because the word “ambitious” could be an understatement for Petrobras' growth plans. The company expects to invest an astounding $224 billion during the next four years to grow its exploration and production capabilities in Brazil. This is projected to push annual oil production to 3.9 million barrels by 2014. Natural gas production will also rise to meet the demand it expects to reach 130 million cubic feet per day in Brazil by 2014.

Petrobras is controlled by the Brazilian government. In many cases, government intervention is seen as a drawback, as it can place political interests ahead of a purer profit motivation that shareholders demand. However, in this case the government serves as a backstop should Petrobras run into any snags as it develops its vast base of reserves. A partner with basically unlimited capital is also a bonus, provided the company earns an acceptable return on its investments, of course. The government was the primary purchaser of stock in the current share offering, which means its interests are firmly aligned with shareholders. It also means Petrobras can basically operate a monopoly in Brazil — last year it accounted for almost 99% of oil and natural gas production in the country last year.

Petrobras' production and exploration activities are also in or very close to its home turf. It operates along Brazilian coastal basins, and the Brazilian federal government has granted Petrobras full access to drill and explore in the coastal regions it controls. Management refers to this as “privileged access,” which it certainly is. Dominance in one of the largest and fastest-growing emerging markets in Brazil is also an important privilege that will allow Petrobras to expand rapidly.

Petrobras' current reserve base is the primary basis by which the company can expand. It will need to grow by nearly five times to achieve a $1 trillion valuation, but this is doable given it estimates 12.1 billion barrels of oil equivalent in reserves. More than 95% of these reserves are in Brazil and it represents about 14 years of production. Better yet, management thinks there is plenty more oil and gas to discover.

Action to Take —> Petrobras will soon begin extracting some of the largest oil finds ever. With an existing market cap of $226 billion, it won't take much for it to reach $1 trillion within a decade — it may take less if growth continues in the double digits for three to five years.

Petrobras already accounts for about 20% of the world's deep-water production and should increase its global share given the vast reserve base. Sales and earnings have expanded at a +26% average annual clip in the past five years and should grow at a similar level in the coming five years as the company ramps up its production capabilities to match its massive reserve finds.

Current company projections call for annual production to double within the next four years. This could put annual sales close to $250 billion and profits well over $30 billion. A similar level of growth in the subsequent four-year period means Petrobras has a good chance at having a market cap of $1 trillion within the next decade. This is obviously a long-term call, but it implies appealing annual returns of about +20% for investors.

– Ryan Fuhrmann

A graduate of the University of Wisconsin and the University of Texas, Ryan Fuhrmann, CFA, adheres to a value-based investing viewpoint that successful companies…

Uncategorized

This Could be the First $1 Trillion Stock

December 8th, 2010

This Could be the First $1 Trillion Stock

The day will come when a public company becomes worth $1 trillion. It's a big number to swallow, but I think it's possible…

When I say a company will one day become “worth $1 trillion,” I'm referring to when a company reaches a market capitalization, or the number of shares outstanding multiplied by its stock price, of $1 trillion. Frequently, record-breaking market capitalizations coincide with a huge market run up or stock market bubble. Many Japanese firms had the largest market caps in the world when the Nikkei exchange reached its peak in December 1989. After that, it started a steady downward slide.

A couple of companies have come close in recent years. PetroChina (NYSE: PTR) boasted a market cap of more than $700 billion back in 2007, while Microsoft (Nasdaq: MSFT) posted an eye-popping market cap of almost $600 billion back in 2009. Both companies currently sport market caps less than half of those peak levels.

The first trillion dollar firm could stem from a future bubble, but it very well could result from a company that gets there the old-fashioned way — by growing sales and earnings. Stock prices follow fundamentals over the long haul, so the only way a firm is going to get there is by improving operations and investors taking notice.

One massive firm that could potentially get there is the Brazilian energy giant Petroleo Brasileiro S.A. (NYSE: PBR). Better known as Petrobras, the company has very ambitious expansion plans and recently completed a nearly $67 billion capital raise campaign by issuing shares on both the Sao Paulo Stock Exchange in Brazil and New York Stock Exchange here in the United States.

Petrobras bills itself as the fourth largest energy firm in the world. The company reported $116 billion in sales and nearly $16 billion in earnings last year. Its current market capitalization is just over $200 billion — so it would need to grow five-fold to get to $1 trillion. But I think it could get there.

That's because the word “ambitious” could be an understatement for Petrobras' growth plans. The company expects to invest an astounding $224 billion during the next four years to grow its exploration and production capabilities in Brazil. This is projected to push annual oil production to 3.9 million barrels by 2014. Natural gas production will also rise to meet the demand it expects to reach 130 million cubic feet per day in Brazil by 2014.

Petrobras is controlled by the Brazilian government. In many cases, government intervention is seen as a drawback, as it can place political interests ahead of a purer profit motivation that shareholders demand. However, in this case the government serves as a backstop should Petrobras run into any snags as it develops its vast base of reserves. A partner with basically unlimited capital is also a bonus, provided the company earns an acceptable return on its investments, of course. The government was the primary purchaser of stock in the current share offering, which means its interests are firmly aligned with shareholders. It also means Petrobras can basically operate a monopoly in Brazil — last year it accounted for almost 99% of oil and natural gas production in the country last year.

Petrobras' production and exploration activities are also in or very close to its home turf. It operates along Brazilian coastal basins, and the Brazilian federal government has granted Petrobras full access to drill and explore in the coastal regions it controls. Management refers to this as “privileged access,” which it certainly is. Dominance in one of the largest and fastest-growing emerging markets in Brazil is also an important privilege that will allow Petrobras to expand rapidly.

Petrobras' current reserve base is the primary basis by which the company can expand. It will need to grow by nearly five times to achieve a $1 trillion valuation, but this is doable given it estimates 12.1 billion barrels of oil equivalent in reserves. More than 95% of these reserves are in Brazil and it represents about 14 years of production. Better yet, management thinks there is plenty more oil and gas to discover.

Action to Take —> Petrobras will soon begin extracting some of the largest oil finds ever. With an existing market cap of $226 billion, it won't take much for it to reach $1 trillion within a decade — it may take less if growth continues in the double digits for three to five years.

Petrobras already accounts for about 20% of the world's deep-water production and should increase its global share given the vast reserve base. Sales and earnings have expanded at a +26% average annual clip in the past five years and should grow at a similar level in the coming five years as the company ramps up its production capabilities to match its massive reserve finds.

Current company projections call for annual production to double within the next four years. This could put annual sales close to $250 billion and profits well over $30 billion. A similar level of growth in the subsequent four-year period means Petrobras has a good chance at having a market cap of $1 trillion within the next decade. This is obviously a long-term call, but it implies appealing annual returns of about +20% for investors.

– Ryan Fuhrmann

A graduate of the University of Wisconsin and the University of Texas, Ryan Fuhrmann, CFA, adheres to a value-based investing viewpoint that successful companies…

Uncategorized

The 3 Best Brazilian Stocks to Own

November 20th, 2010

The 3 Best Brazilian Stocks to Own

When it comes to investing in emerging markets, Brazil is often mentioned as one of the most appealing countries. This is for good reason — its population of more than 200 million represents one of the world's largest markets. Better yet, years of economic growth under the rule of president Luiz Inacio Lula da Silva have brought an estimated 20 million citizens out of poverty and millions more into a middle class.

Economic growth is driving an emerging class of consumers that buy goods and open bank accounts. Brazil is also rich in natural resources and many of its companies have grown into global leadership positions as they export oil and precious metals to other fast-growing emerging markets.

Given these themes, here are three stocks that offer a compelling mixture of operational savvy and reasonable valuations for investors to profit.

1. Petrobras (NYSE: PBR)
Business: Integrated Energy Giant

Energy behemoth Petrobras is arguably Brazil's preeminent blue chip company. Petrobras is effectively controlled by the government, as it is the largest shareholder. This relationship has provided Petrobras with an essentially limitless capital capacity that allows it to fund oil exploration activities and the construction of large oil production and refinery facilities. Its existing four-year plan calls for almost $175 billion in infrastructure investment.

Petrobras has an ambition to grow into one of the top five integrated oil companies in the world. It already produces nearly two million barrels per day and boasts more than 11 billion barrels of reserves after making some of the largest finds in the world off the Brazilian coast. The government has also granted the company exploration rights in regions that could have billions more in reserves.

An investment in Petrobras looks compelling right now. Global uncertainty and volatile oil prices have pushed the shares toward their lows for the year. At current levels, the forward price-to-earnings (P/E) ratio is only about eight and is well below the low double-digit levels of the past couple years. This is a very reasonable entry point for investors, given the ambitious growth targets. It's also worth noting that Petrobras is the largest firm in Brazil, and as such it drives much of the value of Brazilian stock indexes. This makes it a must-own in the country — at the right price.

2. Vale S.A. (Nasdaq: VALE)
Business: Basic Metals Mining

Vale is another national champion and bills itself as the second-largest mining firm and largest iron ore miner in the world. Growth in emerging markets, which includes its Brazilian home as well as rapidly-growing countries such as China, is the main driver of Vale's fortunes and means extremely ample profit opportunities.

Vale is one of the 30 largest public companies in the world. The company operates primarily in Brazil but also has sizable operations in Canada. It has long-life and low cost assets in the ground that it exports across the globe — 50% of sales stem from Asia, while about 20% of the top line stems from Europe and South America. International diversification helps stabilize operations, though demand for its products does fluctuate with global construction activity.

Shares of Vale are bumping up against their highs for the year but still trade for a reasonable forward P/E below 11. The current dividend yield is respectable at 1.4%, but investors should be interested in Vale's ability to grow along with emerging markets for many years to come.

3. Banco Itau (NYSE: ITUB)
Business: Bank

The final pick is a play on domestic Brazilian demand. Banco Itau, along with Banco Bradesco (NYSE: BBD), are the two largest banks in Brazil. After years of dealing with hyperinflation in the economy before the country found a path to stable growth, Brazilian banks have developed some of the most sophisticated technology systems on the planet. This coupled with a growing consumer market for bank loans, checking accounts, and related financial services activities makes the industry very compelling overall.

Headquartered in Sao Paulo, Banco Itau provides commercial and corporate banking services to individuals and businesses throughout Brazil. Recent returns on equity (ROE), an important measure of banking efficiency and profitability, have been stellar at around 20%. This qualifies it as one of the country's most profitable banks. Size matters in banking as well, and this favors Banco Itau, as it can transact business at lower price points to keep earnings coming in.

Again, Banco Itau's forward P/E is reasonable at below 14. This may be higher than U.S.-based investors may be accustomed to paying for banks, but they don't have to worry about things like the U.S. housing bust in Brazil. Banco Itau is also growing rapidly — during the past three years sales have grown more than +30% annually, while earnings have grown nearly +20% in each of these years. This growth is worth paying up for, especially if it continues at a similar pace.

Action to Take —> Emerging markets are safest when focusing on the largest players in the space. As with Petrobras, Vale and Banco Itau, size has its advantages. In the first two cases, the firms have been able to leverage dominant Brazilian positions into global leadership roles in their respective industries. Banco Itau will continue to benefit from domestic growth as more Brazilians are lifted up out of poverty and into the middle class. Shares of any of these companies should be considered a compelling buy.

– Ryan Fuhrmann

A graduate of the University of Wisconsin and the University of Texas, Ryan Fuhrmann, CFA, adheres to a value-based investing viewpoint that successful companies…

Uncategorized

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