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Jul
18
Jonathan Yates
When is the Last Time You Heard of An Oil Company Going Out-of-Business?
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Petrobras (NYSE: PBR) is the largest publicly traded company in Brazil.  It is major oil and natural gas company, with a market cap of over $90 billion and sales of more than $143 billion.   While the price of oil (NYSE: USO) is up, shares of Petrobras have fallen.  For 2013, Petrobras is down almost 30%.

Generally, when the price of oil jumps, so will the oil company stock.  But as the chart below shows, that has clearly not happened with Petrobras.

 

This should be a buying opportunity for the long term investor.  At present, Petrobras is tremendously undervalued compared with other major oil companies.  Petrobras is selling at a price-to-book ratio of 0.54.  By contrast, Exxon-Mobil (NYSE: XOM) is at a price-to-book ratio of 2.51.  While Chevron is selling at a price-to-sales ratio of 1.01, Petrobras is trading at a price-to-sales ratio of 0.63.

While waiting for the share price of Petrobras to catch up with its valuations, investors will be receiving a 4.17% dividend.  That is more than twice the average for a member company of the Standard & Poor’s 500 Index (NYSE: SPY).  It is also a strong dividend yield for an oil company, too.

Investors are starting to see the potential in Petrobras.  Over the last week of market action, it has risen by more than 13%.  Now trading around $13.91 a share, the mean analyst target price for Petrobras over the next year is $22.33.  There is obviously much more room for Petrobras to rise.

 



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