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

TMFDeej (99.37) Submitted: 9/12/2007 7:00:21 AM : Start Price: $22.32 PBR Score: +102.53

I initially came across Petrobas when looking for ways to capitalize on growing market for ethanol, but I have come to learn that not only is it an ethanol play but it is one of the best, most undervalued oil companies out there. It has huge proven reserves and great expansion efforts. It's even looking into adding refining capacity and I am very bullish on refiners. Furthermore, it has been consistently raising its dividend, which is always a good sign.

Petrobas is a large Brazillian oil and gas company that is also heavily involved in the ethanol business. The bulk of PBR's revenues come from its oil production, but the ethanol aspect of the company could help boost earnings in the future. According to the company's web site, it exports ethanol to Japan and Venezuela and it is in the process of shipping its first load to Nigeria. In 2007, Petrobras expects to export 850 million liters of ethanol. By the year 2011 it expects its ethanol exports to reach 3.5 billion liters, an increase of 400%. I wonder how profitable ethanol production currently is and if it will become more profitable as future demand increases (if it actually does). I guess that a lot of the demand for ethanol will hinge upon the price of oil, which is difficult to predict short-term, but one would expect to increase long-term. Which will benefit PBR's oil production and increase the demand for ethanol, Interestingly, President Bush traveled to Brazil earlier this year and visited a PBR facility in Guarulhos, São Paulo to learn more about ethanol production.

Petroleo Brasileiro is also involved in the production of biodiesel from vegetable oils and animal fat.

This is a great company that I unfortunately did not purchase shares of when I originally picked it in CAPs several months ago. I did take advantage of the recent market weakness a few weeks ago to finally start a real position though.