Petroleo Brasileiro S.A. (ADR) (PBR)

TheGarcipian (98.95) Submitted: 5/28/08 1:44 AM : Start Price: $56.50 PBR Score: -14.01

On the oil side of the equation, this Brazilian-based company is the 800-pound gorilla in Latin America oil-producing economies, beating out all other sectors (I believe) in the following countries: Argentina, Chile, Colombia, Mexico, Peru and Venezuela. (Actually, I'm not if Venezuela beats out PBR, but considering the hostile political environment that President Chavez holds, I'd not bet on any Venezuelan oil company directly). And the numero uno oil producer in Latin America (at least in a free enterprise system) is the national oil company of Brazil. For the same reasons I'm investing in ILF and EWZ, I am pushing PBR as well. As of 2/29/2008, PBR makes up a full 26.5% of the MSCI Brazil Index Fund (EWZ). I think all three of these picks are excellent long-term picks. Its EnterpriseValue-to-EBITDA is a decent 10.5, meaning its earnings are fairly good for the amount of money someone would have to spend in order to buy the company outright. I'd prefer this number to be down at 7 or less, but 10.5 is okay.

With revenue at a very healthy one-third of its market cap, PBR has certainly had a great run-up, already pushing a P/E of 24 (trailing P/E). But it continues to perform with profit margin of 12.6%, operating margin of 20.4%, quarterly revenue growth of 10.7%, and debt is medium-low (33.1% of equity) for this industry giant. My only concerns are the slightly negative quarterly earnings growth (-2.80%) and free cash flow is slightly negative. Hopefully, those numbers will improve over the next 3-5 years.

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