A Hot 5-Star Stock Idea: Petrobras

There's an old -- and very appropriate -- investing saw that says, "Tips are for waiters." So I'm not going to bother giving you a stock tip. I do, however, have a stock idea for you.

What's the difference? Well, a stock tip is generally a hush-hush, wink-wink affair where the tipper expects the tip-ee to run out and buy the stock based on the tip alone. A stock idea, on the other hand, is a good starting point, but is in need of further research before it becomes a fully baked investment thesis.

So let's cut the jibber-jabber and get right to today's idea: Petroleo Brasileiro (NYSE: PBR  ) . The Motley Fool's CAPS community has overwhelmingly recommended this stock, with more than 3,600 members giving it an outperform rating versus just 64 who have rated it an underperformer.

Last year, when oil prices were peaking, it seemed like blue skies forever for Petrobras. Not only was the company serving up the hot commodity of the day, but investors were ga-ga over the growth ahead for its home country of Brazil. After being chopped down to a fraction of what they were, oil prices have shown some life recently. Petrobras' stock has responded in kind and has more than doubled since the lows it hit back in November.

Let's take a look at how Petrobras compares to some other companies in the energy patch:

Company

TTM Net Profit Margin

TTM Return on Equity

Price-to-Earnings Ratio

CAPS Rating
(out of 5)

Petrobras

15.0%

23.8%

11.7

*****

BP (NYSE: BP  )

5.2%

17.6%

9.8

*****

Total (NYSE: TOT  )

6.3%

18.9%

10.1

*****

Chevron (NYSE: CVX  )

9.1%

24.7%

6.8

****

ExxonMobil (NYSE: XOM  )

9.5%

33.8%

9.6

****

PetroChina (NYSE: PTR  )

10.5%

13.3%

14.3

****

Source: CAPS, Yahoo! Finance, and Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.

As you can see from the chart above, CAPS members seem to like a bunch of the major oil and gas names. However, if we were going to make a boy band consisting of these companies, Petrobras' operating statistics and popularity among CAPS investors would give it a pretty good shot at being the lead singer.

I have given Petrobras' stock a thumbs-up in my own CAPS portfolio, but I'm far from alone. CAPS All-Star imajerbear gave the stock a thumbs-up in February and chimed in with this pitch:  

Oil and gas may be deep in to it right now, but long term as the world economy pulls itself up by it's bootstrapes, oil will make a comeback. Alt energy is wonderful, but it will take many years for it to make a significant dent in the use of oil. The days of easy extraction of oil are gone and some of the petroleum resources ie oil shale will require prices above $80 long term to exploit them economically. Oil fields around the world are showing decreases, some major, in their output. I am also convinced that OPEC is actually seriious this time about toeing the line on production reductions to try to drive the price of oil to the $70 mark or better.

So what do you think? Is this an idea worth pursuing or is Petrobras an overrated stock? Head over to CAPS and let the 135,000-member community know what you think.

Further Foolishness:

Petrobras and Total are Motley Fool Income Investor recommendations. Try any of our Foolish newsletters today, free for 30 days

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool. The Fool's disclosure policy is on the lookout for lightning bugs.


Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 05, 2009, at 7:51 PM, bigroosterdaddy wrote:

    Added PBR to my portfolio when it was around $25.00, glad I did! My only regret is that I didn't have more to invest at the time.

  • Report this Comment On June 06, 2009, at 1:44 PM, valari25 wrote:

    I have always wondered about the difference between PZE and PBR. Both are called Petrobras and I often see the tickers used interchangably when the talking heads are discussing oil and brazil.

    Which one is the one to invest in? What is the difference between the two?

  • Report this Comment On June 11, 2009, at 2:53 PM, deltafox2 wrote:

    The two get confused every now and then. PZE (Petrobrasil Energia) is a holding company headquartered in Buenos Aires, Argentina and owned - at least in great part - by Petrobras Brasil (PBR), the "real" Petrobras. Facts and figures can easily be researched e.g. through the companies websites. PZE Q1/09 results were disastrous, resulting in the stock value tanking of course. On the positive side, this was due at least to some extent by serious money being invested into exploration of new fields which may or may not show results. Historically PZE paid a dividend - if this will take place in 2009 is anyones' guess. In summary, PBR is clearly the more favoured stock and without doubt most probably the better choice despite the fact it is 100% above last years low. You cannot really compare the investing environment of Brasil (BRIC) and Argentina. The latter appears to risk being degraded to a "frontier state" due to massive government intervention in all things financial (but then, have a look at what's currently going on in the US...).

    People mixing up PZE and PBR hardly deserve being called an expert.

    Going long on oil clearly is a good idea. As an alternative to government-run or influenced highly endebted companies such as the two P's, going into companies like NOV is worth consideration.

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