Tim Seymour: A recent upgrade for the Brazilian oil company confirms the improving capital expenditure story for this massive stock, one of the biggest in Latin America.
UBS rated Petrobras (NYSE:PBR) a “buy” after the company promised that it will only spend $225 billion through 2015 on new projects.
The company promised to use operational cash flow and not debt to fund the spending.
This confirms our suspicion that Petrobras would be scaling back on all but its highest-return exploration and production prospects.
As it is, Petrobras has been de-rated in the markets, having underperformed Brazil over most of this year.
Investors have been fleeing the stock, but higher oil prices will make a lot of their reserves more feasible to drill and develop.
PBR has been a good dog with fleas, essentially. Now, maybe it will just be a good dog — maybe even a purebred — that is undervalued in a world where oil prices can climb to $130 a barrel.
The stock is getting a minor lift today, but with PBR shares down 10% year to date, there is still plenty of room to play the emerging change in sentiment.
And remember: as PBR goes, the Brazilian market cannot help but follow.
A turnaround for PBR means a turnaround for iShares MSCI Brazil Index ETF (NYSE:EWZ) and other Brazilian large-cap ETFs:
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.
About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.